Markowitz Misunderstood

Harry Markowitz published his research titled “Portfolio Selection” in The Journal of Finance in 1952. He began the paper by parsing the portfolio selection process: “The process of selecting a portfolio may be divided into two stages. The first stage starts with observation and experience and ends with beliefs about the future performances of available securities. The second stage starts with the relevant beliefs about future performances and ends with the choice of the portfolio. This paper is concerned with the second stage.” In this article, we’ll consider the implications of the first stage, which is crucial to investors’ success in current market conditions.