Financial diversification before modern portfolio theory: UK financial advice documents in the late nineteenth and the beginning of the twentieth century

Portfolio advice before modern portfolio theory: The Belle Epoque of French analyst Alfred Neymarck

“…Ultimately, our results should be seen as a complement to the recent series of works on the composition of pre-WW1 UK portfolios. Our results illustrate what Rutterford and Sotiropoulos (2016) call the 'UK-French connection' favouring diversification. Indeed, the quality assessment of the advice provided by Neymarck is consistent, to a certain extent, with the MPT findings.…”

“…It is worth noting that this type of analysis is achieved via the precise evaluation of risk, return and correlations across indices. Although analysts at the beginning of the 20 th century were familiar with these concepts, it was impossible for them to attain this level of detail (see also Rutterford & Sotiropoulos, 2016).…”

“…In their analysis of a series of financial advice documents from the 1870 s to the beginning of the twentieth century, Rutterford and Sotiropoulos (2016) documented that despite some differences between the UK and France, the main concepts of Modern Portfolio Theory (Markowitz, 1952(Markowitz, , 1959 were discussed in both countries before WW1. 2 'The core principles of Modern Portfolio Theory, namely, the risk-averse investor, the distinction between specific and systematic risk, the concept of correlation and the strategy of international diversification (on the basis that markets are segmented), appeared and were discussed both among UK and French financial experts, reviews, newspapers, books and pamphlets' (Rutterford & Sotiropoulos, 2016, p. 940).…”

Putting all their eggs in one basket? Portfolio diversification 1870–1902

“…For the UK, business historians have argued that this awareness extends back to the last quarter of the late nineteenth century (Cheffins [2010, 127]) and even to the aftermath of the Glorious Revolution in the seventeenth century (Carlos et al [2015]). There is also textual evidence that the basic principles of diversification together with related portfolio selection techniques, were widely discussed and promoted by financial analysts as early as the 1870s (Goetzmann and Ukhov [2006]; Rutterford and Sotiropoulos [2015b]). Indeed, by the first decade of the twentieth century, authors such as Lowenfeld were promoting a more sophisticated, top-down risk reduction approach, termed the 'geographical distribution of capital' (Lowenfeld [1907], [1909] and [1911]).…”

“…They, and others, point to financial advice at the time recommending international diversification, albeit naïve, as a strategy to improve portfolio yields whilst reducing portfolio risk (Goetzman and Ukhov [2006], Sotiropoulos and Rutterford [2015b]). However, the authors had no individual portfolios with which to confirm their macro country level results.…”