“My portfolio theory says you, the investor have to pick out a universe of stocks; it may not be stocks, it may be asset classes, and you can have very detailed asset classes, or you can have very gross asset classes, but you have to pick the universe, somehow. Given this universe, you have to make forward-looking estimates of expected returns and, in some manner, of variances and co-variances. Rather than estimate individual co-variances of which there are too many, you can have a model of co-variances of which you have to estimate the parameters of that model.”
“That’s where we started.”
“That’s where we are now.”
Harry Markowitz, Quant Insights Conference, November 2020
