Volume 14, Number 4, 2016
In 1952, Harry Markowitz suggested that his mean–variance analysis approach could be used for theoretical analyses or for the actual selection of portfolios. He then presented an algorithm for practitioners to use—the Critical Line Algorithm. However, the investment industry has not embraced the Critical Line Algorithm for the latter purpose—security selection. Between 1952 and today the industry migrated to nonparametric search algorithms for most commercial optimizers because of their greater computing cost efficiency; simultaneously asset allocation came to the fore as passive investment products became available. Markowitz’s mean–variance approach has been rightly lauded for its contribution to Modern Portfolio Theory and the growth of the index fund industry. I observe that the Markowitz Critical Line Algorithm can be a highly efficient, valuable tool when employed for actual security selection.