When Harry Markowitz's paper "Portfolio Selection" appeared in The Journal of Finance's March 1952 edition, it arrived in a vacuum. Investment research of one type or another may be as old as civilization, but mathematically rigorous portfolio analysis is younger than Bill Clinton.

Nearly sixty years after the publication of the founding document in what would become known as modern portfolio theory, a casual observer might wonder: have we learned anything? The heavy losses in 2008, along with a broad review of financial history, suggest that any response should err on the side of modesty. There are many victories in the pursuit of human intellect, but it's not always clear that money management is among them.

Part of the problem is that what we don't know about markets still dominates. At the same time, progress isn't unknown in finance, even if it sometimes appears otherwise. Certainly our collective intelligence in the design and management of portfolios has made great strides since Markowitz's initial foray all those years ago. But in some respects, the low-hanging fruit has been picked in the past half century. In 1952, we knew very little about asset pricing and portfolio strategy. As such, there was nowhere to go but up when Markowitz's research first hit the streets.

More than half a century later, financial economists are still a long way from "solving" the investment challenge, but no longer are we blind. Nonetheless, it's not obvious that anything even remotely ...

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