Читать книгу Competitive Advantage in Investing - Steven Abrahams - Страница 19

Markowitz also left open an essential aspect of his approach: the best way to determine expected return, risk, and diversification:

To use the E-V (expected return and variance) rule in the selection of securities we must have procedures for finding reasonable (expected returns and variances). These procedures, I believe, should combine statistical techniques and the judgment of practical men. My feeling is that the statistical computations should be used to arrive at a tentative set of (returns and variances). Judgment should then be used in increasing or decreasing some of these (returns and variances) on the basis of factors or nuances not taken into account by the formal computations. (Markowitz, 1952, p. 91)

Despite the investors' essential job of combining risk, return, and correlation into portfolio performance, Markowitz still left open the best way to predict these things. If use of time is a good signal, then performance depends on expectations about asset cash flow and plausible changes in the relevant risk factors. A large block of investors' time goes to anticipating asset cash flow, whether it is earnings or dividends in the case of equity securities or coupons, option exercise, prepayments, or defaults in the case of fixed income securities. Another block goes to anticipating the path of events that might re-price securities such as changes in monetary or fiscal policy, politics, the economy, interest rates or option prices, science or technology, or other factors. These effectively are the risk exposures embedded in available securities. The intersection between probable scenarios and the value of specific security cash flows is the daily work of portfolio construction.

In a Markowitz world, investors may end up with competitive advantage. Some investors may simply have more or different or better information than others. Some may be able to run faster or better analysis. Some investors may be able to consistently anticipate the return, risk, and correlation of assets more accurately than others. Some may be able to consistently build portfolios that perform better than others'. Markowitz would expect a return to investing in research and analysis.

But most individuals or organizations will lack the resources to develop comparative advantage along every underlying risk factor. When an investor has no clear advantage or disadvantage, diversification improves returns to risk-taking by washing out idiosyncratic risk. Diversification protects an investor from his or her own blind spots.

Arguably the greatest value in Markowitz's framework is to emphasize the importance of trading off risk and return. Each investor operates in a multidimensional return-risk space and constantly faces choices not just about the best combination of securities to hold but also the combination of risk dimensions along which to optimize. If investors can identify their universe of securities and the underlying risk dimensions, Markowitz provided a starting road map for making those choices. Each investment ultimately reduces to risk, return, and correlation. That reduces the infinite menu of investments to a smaller and more manageable set.

What Markowitz did not do, however, is provide a specific recommendation about how to build a portfolio. He led us to the efficient frontier but does not tell us where to settle. For that, the world had to wait for William Sharpe and the capital asset pricing model (1969 Sharpe, 1964; Lintner, 1965).