In 1952, a 25-year-old graduate student published a 14-page paper that changed Wall Street forever. Harry Markowitz’s "Portfolio Selection" laid the mathematical foundation for modern quantitative finance and earned him a Nobel Prize.

In this inaugural episode of Finance Papers, we strip away the fluff and do a section-by-section deep dive into the actual math and mechanics of Markowitz's original text.

Key Topics Covered:

• ​The Concentration Trap: Why trying to purely maximize returns mathematically forces you to put 100% of your money into a single stock.
• ​The Myth of Large Numbers: Why holding 60 railway stocks isn't true diversification when a systemic market crash hits.
• ​The Magic of Covariance: How the interaction between assets—not their individual volatility—defines true portfolio risk.
• ​The Computing Bottleneck: How the sheer impossibility of calculating 125,000 covariance pairs by hand in 1952 eventually led to the creation of Beta and CAPM.
• ​The Math of Gambling: Why rational humans willingly buy lottery tickets (the statistical concept of Skewness).

Paper Explored: Markowitz, H. (1952), PORTFOLIO SELECTION*. The Journal of Finance, 7: 77-91.

🔗 Read the full paper here: https://doi.org/10.1111/j.1540-6261.1952.tb01525.x

Finance Papers is conceptualized and curated by Luiz Gidrão, CFA, CAIA (founder of stock.cash and goa.capital). Hit play, open the paper PDF, and learn with us.