Portfolio Management

PofE085: The History of Portfolio Management

After the Great Depression, investment diversification became the cry of the decade. It also became the mantra in music, and the Bass instrument led the way. Check out my video to learn what the history of Portfolio Management has in common with the electric Bass.


Applied Project Portfolio Management in a Historical Context

Discover what the electric bass can teach you about your investments and the critical role that diversification plays in portfolio management.

To gain a firm understanding of the best portfolio management techniques, it helps to understand the history of portfolio management and how it has evolved from the Great Depression to the present day. Interestingly enough, the electric bass provides a relatable metaphor for how investment diversification emerged out of the Depression. As you'll quickly discover, the two histories have a surprising amount in common.

A Shared History

In 1930, the very first electric bass was developed by Paul Tutmarc from Seattle, Washington. This was a massive achievement because it provided musicians with the opportunity to play a bass horizontally instead of vertically. Before the invention of the electric bass, players had to rely entirely on those heavy upright basses. After the Depression, a lot of players–and a lot of Americans in general–were looking for something new to take them out of their rut. Just as business owners realized the devastating dangers of investing all of their money in the stock market, musicians were discovering new ways to diversify their sound and enrich their own musical portfolios with an array of new and exciting styles. As a result, both portfolio management techniques and the electric bass arose during this era as a form of optimism.

John Bernie Williams and His Role

Because so many people had singular investments in the stock market, they lost the vast majority of their investments during the Depression. Then, in 1938, John Bernie Williams wrote an article entitled "The Theory of Investment Value." That article was ultimately adapted into a book, and that book is widely credited with opening people's eyes to the principle of diversification. As a result, investors began to really inspect their instruments to determine whether or not it was feasible to spread their investments around several asset classes.

The Evolution of Ideas

After "The Theory of Investment Value" began the conversation about diversified assets, another analyst named Benjamin Graham took the concept even further in 1942. He wrote an article entitled "Intelligent Investor," and he is now known as the father of value investing because of his personal insight in the field.

In 1952, Harvey Markowitz expanded the concept yet again with the modern portfolio theory. Sure enough, this also coincided with the renaissance of popular music in the form of rock and roll, blues, R&B, and other new forms of expression. As diverse portfolio management theory took on a life of its own, so did the music scene. And just as the arts can't survive on one style of music, your portfolio can't hope to survive on a singular investment. When you're considering how to improve your portfolio, remember that there's a lot of great music out there, and you don't want to go broke by constantly playing the same song.

If you're interested in learning more about wise project portfolio investment techniques, I encourage you to check back each week for the latest videos and tips. Be sure to also check out my informative book "Culture is the Bass: 7 Principles for Developing a Culture That Works."

For the Record:

  • In 1930, Paul Tutmarc. a musician and inventor created the first electric String Bass and it was designed to be played horizontally, enabling the diversification of various styles of bass sounds, much like the diversification that was needed in the investment world.
  • In 1938, John Burr Williams wrote "The Theory of Investment Value.“
  • In 1942, Benjamin Graham wrote the “Intelligent Investor,” and became known as the father of Value Investing
  • In 1952, Harry Markowitz described the concept of Modern Portfolio Theory in his paper, “Portfolio Selection.”
  • In 1990, Markowitz won the Noble Prize  with Miller and Sharpe.
  • In 1981, F. Warren McFarlan applied MPT to IT investment management.
  • In 1994, GAO issued a report entitled, “Improving Mission Performance Through Strategic Information Management.”
  • In 1996, Congress enacted the Clinger–Cohen Act – IT Management Reform Act
  • In 1998, GAO issued another report entitled, “Executive Guide: Measuring Performance and Demonstrating Results of Information Technology Investments.”
  • In 2000, GAO published the IT Investment Management Framework
  • In 2012, OMB launch PortfolioStat

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