The genius of Markowitz’s portfolio theory, unveiled to the world in a 1952 research paper, shines as bright in the 21st century as it did 50 years previous. But it’s debatable if the associated logic and allure of the basic concept is widely understood or practiced in 2008.
Granted, Markowitz himself has partially renounced some of the technical aspects of the original paper. Namely, the idea that one should “optimize” a portfolio solely by analyzing expected returns vis a vis expected volatility (standard deviation) is considered by many to be overly simplistic and in need of revision. In fact, there’s been much progress in bringing more nuance and sophistication to portfolio theory over the past 50 years. There are as many ways to implement a Markowitz-inspired view of portfolio theory as there are stars in the heavens. Yet there’s still value left in the conventional proposition of Markowitz’s portfolio theory, aided and abetted by the capital asset pricing model and the efficient market hypothesis.