Intellectual capital

Institutional Investor’s Journal of Portfolio Management provided the manifesto for revolution in money management. Here’s a look at why JPM remains so provocative at 30.

Modern portfolio theory recommends diversification. That has also been a guiding principle of Institutional Investor’s Journal of Portfolio Management, which celebrates its 30th anniversary this month. Founding Editor Peter L. Bernstein, who from the start showed a felicity with words to match his facility with ideas, encouraged a wide range of contributors. In all, he calculates in his introduction to JPM’s anniversary issue, the quarterly has published 1,320 articles by 1,858 contributors.

“Most contributors had no idea how to write with clarity and grace, forcing me to spend many hours rewriting articles,” he grumbles in the classic editor’s lament.

No fewer than seven Nobel Prize winners have contributed to the journal, which is currently edited by Frank Fabozzi, with Bernstein as Contributing Editor. They are: Daniel Kahneman (one article), Harry Markowitz (six articles), Merton Miller (two), Franco Modigliani (one), Paul Samuelson (six), William Sharpe (eight) and James Tobin (one). As Bernstein notes, the total would be eight if “we include the ten marvelous articles contributed by Fischer Black, in the high confidence that he would have become a laureate if his life had not been cut short before option pricing theory won the award.” A co-inventor of the Black-Scholes option pricing model, Black, who was an academic before becoming a partner at Goldman, Sachs & Co., died of cancer in 1995 at 57.

JPM and MPT came of age together. In early 1974, as “inflation and the go-go years were colliding in what would be a tremendous smash in the bond and stock markets,” as Bernstein puts it, Gilbert E. Kaplan, founder of Institutional Investor, took him up on his offer to create a publication to cover the fast-evolving world of portfolio management. “I had complete freedom over the content and the selection of authors, without any interference from any other part of the company,” Bernstein remembers. The first issue, featuring articles by Black and Samuelson, debuted in October 1974.

In some respects, it fell to JPM to be a sophisticated popularizer. As Bernstein points out, much of the seminal thinking in modern portfolio management occurred between 1952, when Markowitz published “Portfolio Selection” in the Journal of Finance, and 1973, when Black and Scholes came out with their options pricing model. These dates, he notes, “embrace Paul Samuelson’s and Eugene Fama’s random walk and efficient market theories, Tobin’s separation theorem to distinguish between the Markowitz process of selecting risky securities and the asset allocation choices between risky and riskless securities, Franco Modigliani and Merton Miller’s theories of corporate finance and the power of arbitrage, and the Sharpe-Treynor-Lintner-Mossin capital asset pricing model.”

No theoretical advance since that febrile time “can match the overarching importance of the group listed” above, Bernstein maintains. Others might dispute that, and you can be sure that if they had a cogent case to make, they would find a forum in theJournal of Portfolio Management.

Here, printed in full, are two of the more thought-provoking articles from JPM’s anniversary issue -- one by money manager and theoretician Robert D. Arnott and the other by Nobelist Samuelson, who first appeared in JPM’s pages three decades ago.