Capital Ideas — Chapter 5: Illusions, Molecules, and Trends

1. 1. Harry Markowitz's 1952 article on portfolio selection was published when the Dow was at 280, still 25% below the 1929 high.
2. 2. Holbrook Working found that commodity price changes were largely random and indistinguishable from a random number series.
3. 3. Maurice Kendall analyzed 19 stock groupings and wheat prices, concluding prices were 'virtually wandering' with no predictable structure.
4. 4. Harry Roberts generated a random price series that produced a 'head-and-shoulders' pattern, indistinguishable from real stock charts.
5. 5. M.F.M. Osborne showed that percentage changes in stock prices follow Brownian motion, like molecules in a gas.
6. 6. Sidney Alexander initially found that filter strategies could profit from trends, but later retracted after accounting for commissions and random walk.
7. 7. By the end of the 1950s, academic research consistently showed stock price changes are unpredictable, yet Wall Street ignored it.
8. 8. The shift from statisticians to economists in studying stock prices was not inevitable; finance courses in the 1950s were outdated and unpopular.