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  • Dr. David Marcinko [Publisher Emeritus]

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    As a Distinguished University Professor and Endowed Department Chairman, Dr. David Edward Marcinko MBBS DPM MBA MEd BSc CMP® was a NYSE broker and investment banker for a decade who was respected for his unique perspectives, balanced contrarian thinking and measured judgment to influence key decision makers in strategic education, health economics, finance, investing and public policy management.

    Dr. Marcinko is originally from Loyola University MD, Temple University in Philadelphia and the Milton S. Hershey Medical Center in PA; Oglethorpe University and Atlanta Hospital & Medical Center in GA; and Aachen City University Hospital, Koln-Germany. He is one of the most innovative global thought leaders in health care entrepreneurship today.

    Professor Marcinko was a board certified physician, surgical fellow, hospital medical staff Vice President, public and population health advocate, and Chief Executive & Education Officer with more than 425 published papers; 5,150 op-ed pieces and over 135+ domestic / international presentations to his credit; including the top ten [10] biggest pharmaceutical companies and financial services firms in the nation. He is also a best-selling Amazon author with 30 published text books in four languages [National Institute of Health, Library of Congress and Library of Medicine].

    Dr. Marcinko is past Editor-in-Chief of the prestigious “Journal of Health Care Finance”, and a former Certified Financial Planner® who was named “Health Economist of the Year” in 2010, by PM magazine. He is a Federal and State court approved expert witness featured in hundreds of peer reviewed medical, business, economics and trade publications [AMA, ADA, APMA, AAOS, Physicians Practice, Investment Advisor, Physician’s Money Digest and MD News] etc.

    As a licensed insurance agent, RIA – SEC registered representative, Marcinko was Founding Dean of the fiduciary and niche focused CERTIFIED MEDICAL PLANNER® online chartered designation education program; as well as Chief Editor of the HEALTH DICTIONARY SERIES® Wiki Project.

    Dr. Marcinko’s professional memberships included: ASHE, AHIMA, ACHE, ACME, ACPE, MGMA, FMMA and HIMSS. He was a MSFT Beta tester, Google Scholar, “H” Index favorite and one of LinkedIn’s “Top Cited Voices”. Presently, Marcinko is “ex-officio” and R&D Scholar-on-Sabbatical for iMBA, Inc.

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The Living Legacy of Dr. Harry Markowitz

Creating Diversified Portfolios of Uncorrelated Assets

By Dr. David Edward Marcinko MBA CMP™

[Publisher-in-Chief]

More than a half century ago, a paper appeared in The Journal of Finance written by a 24-year-old doctoral candidate in economics at the University of Chicago—Harry Markowitz. It was called “Portfolio Selection” and suggested that investors take into account risk in pursuit of the highest return—a concept that we take for granted today [Modern Portfolio Theory].

Markowitz drew a trade-off curve between risk and reward and called it the “efficient frontier.” A rational physician executive or other investor who knew his or her risk tolerance could choose an appropriate portfolio from a point on this curve. Markowitz led investors to diversified portfolios of uncorrelated investments.

Dissertation Follow-up

Markowitz followed up his dissertation in 1959 with a book entitled Portfolio Selection [Efficient Diversification of Investment]. His many contributions to finance earned him the Nobel Prize in Economic Science in 1990 along with William Sharpe and Merton Miller. He reasoned that diversification is about avoiding the covariance.

If risks are uncorrelated, you can reduce the risk of a portfolio to practically zero by sufficient diversification. This doesn’t work if risks are correlated. If one invests in a very large number of securities that are correlated, risk does not approach zero but rather the average covariance, which is a very substantial amount of risk.

Where It All Started

It was at the RAND Corporation that Markowitz met William [Bill] Sharpe who was working on his PhD at UCLA. Markowitz takes issue with Sharpe’s Capital Asset Pricing Model (CAPM), which claims that the expected return of a security depends only on its beta—ignoring fundamental analysis.

CAPM also implies that the market portfolio is efficient, even though investors in the market may not act rationally. It says that the market portfolio is a mean-variance efficient portfolio. Markowitz disputes this conclusion. He points to Fama and French and others who have found that expected returns are more closely related to book-to-price or size—not to beta.

Assessment

The still living Markowitz fends off criticism of mean-variance analysis only being valid when probability distributions are normal by stating that he realizes that probability distributions are not normal in the real world.

But, if they are similar to a normal distribution, mean variance does a good job at approximating expected utility. He admits that when they are too dispersed, mean variance doesn’t work well.

Note: Travels along the Efficient Frontier,” an interview with Harry Markowitz by Jonathan Burton, Dow Jones Asset Management, May/June 1997, pp. 21–28, Dow Jones Financial Publishing Corp.

Conclusion

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