By Dr. Sam L. Savage
August 24, 1927 - June 22, 2023
It is with deep sadness that I announce the passing of Harry Markowitz, Nobel Laureate in Economics, father of Modern Portfolio Theory, and co-founding Board member of ProbabilityManagement.org, in San Diego on June 22. Harry’s obituary published by the New York Times can be found here.
Harry truly started the war on averages in the early 1950’s at the University of Chicago. He read the academic literature of the time which specified that investment decisions should be based on the average value of the assets. But he knew that averages did not take risk into account. For example, if you hijack an airliner, ask for $1 billion and have one chance in 1,000 of getting away with it, your average return is a cool $1 million, but count me out.
So, Harry introduced another dimension that measured risk, forming the risk/return plane. He then showed how to create an optimal set of investments based on the covariance between stocks, called the efficient frontier. Any investment on the frontier was rational depending on your risk appetite. Anything to the right of the frontier was nuts because there were investments to the northwest that had both a higher average return and lower risk. Anything to the left was mathematically impossible, which, in fact, led to the detection of fraudster, Bernie Madoff.
When I told Harry that the chapter about him in my book, The Flaw of Averages, was called the Age of Covariance, he started singing Age of Aquarius. That was quintessential Harry, and I am choked up thinking about it.
Harry studied at the University of Chicago with both Milton Friedman and my father, Jimmie Savage, but I only met him by chance in the mid-1990s, and we hit it off. It was gratifying to show him how we had applied his efficient frontier concept at Shell in 2005. The article and model on this application may be found here.
In 2012, when the Microsoft Excel data table became powerful enough to support the discipline of probability management, Harry generously and eagerly agreed to help Michael Salama (Lead Tax Counsel of Walt Disney) and me in founding ProbabilityManagement.org. He even offered his office in San Diego as the venue for our first organizational meeting in May of 2012 (see photo below).
Harry’s passing triggers not only sadness but also deep gratitude for his generosity. Without Harry, ProbabilityManagement.org would not have gotten off the ground. He will be greatly missed by us and many in the probability management community.
Copyright © 2023 Sam L. Savage