IN 1952, THREE YEARS AFTER JONES HAD LAUNCHED HIS FUND, modern portfolio theory was born with the publication of a short paper titled “Portfolio Selection.” The author was a twenty-five-year-old graduate student named Harry Markowitz, and his chief insights were twofold: The art of investment is not merely to maximize return but to maximize risk-adjusted return, and the amount of risk that an investor takes depends not just on the stocks he owns but on the correlations among them. Jones’s investment method crudely anticipated these points. By paying attention to the velocity of his stocks,
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