Peter Bernstein’s Personal Hall of Fame

3 June 2007

Peter Bernstein is one of the most prolific chroniclers of financial history.  Our favorite Bernstein tome is the 1992 classic “Capital Ideas” which covers the birth and maturation of financial theory from the 19th century to the 1990s.  

Last month, Bernstein released the much anticipated sequel to Capital Ideas, Capital Ideas Evolving, in which he updates and expands on many of his original themes.  The book is based largely on interviews with approximately 20 leading financial thinkers.  Some make a repeat appearance after playing a central role in Bernstein’s first book (e.g. William Sharpe & Myron Scholes) and some are members of a new generation of financial thinkers that we have followed at AllAboutAlpha.com (e.g. Andrew Lo & BGI’s Blake Grossman). Each individual is pictured in the photo-plates in the middle of the book and nearly all have a chapter dedicated to their various exploits. 

Bernstein divides his personal hall of fame into four categories: the “behavioralists” - pioneers of behavioral finance; the “institutionalists” who focus on the institutional structure of financial markets; the “engineers” (all from Bernstein’s first tome); and the “practitioners” - who have since executed on the promise of “Capital Ideas”. 

So, without further ado, here is Bernstein’s list (in order of appearance, hyperlinks added by us):

The “Behavioralists” 

• Daniel Kahneman, Professor of Psychology, Princeton: Nobel Prize in 2002
• Richard Thaler, Professor of Behavioral Science and Economics, University of Chicago: Behavioral finance guru 

The “Institutionalists” 

• Robert Merton, Harvard Business School: 1997 Nobel Prize winner (along with Myron Scholes) for options work (related video)
• Andrew Lo, Professor of Finance, MIT: Developer of the “Adaptive Markets Hypothesis” & hedge fund guru (related postings)
• Robert Schiller, Yale University: Author of “Irrational Exuberance” (related video)

The “Engineers” 

• William Sharpe, Professor Emeritus, Stanford University: Nobel Prize winner (1990) for CAPM (related video)
• Harry Markowitz: Shared 1990 Nobel Prize for mean-variance optimization (related video)
• Myron Scholes: Won 1997 Nobel Prize with Merton for namesake option pricing model (related video)

The “Practitioners” 

• Blake Grossman, CEO, Barclays Global Investors (BGI): Joined BGI predecessor after serving as Sharpe’s research assistant. (related postings)
• David Swensen, CIO, Yale University Endowment: Blew most universities out of water during 1995-2006. (see bookstore)
• Eugene Fama, Professor, University of Chicago: Set forth principles of Efficient Markets Hypothesis (related postings)
• Jack Treynor: According to Bernstein “established the groundwork for today’s strategy of portable alpha”
• Bill Gross: As founder of PIMCO, created “StocksPLUS”, an early proto-portable-alpha fund
• Marvin Damsma, CIO, BP’s Pension
• Martin Leibowitz, Morgan Stanley (former CIO, TIAA-CREF)
• Bob Litterman, Goldman Sachs 

Finally, he places Paul Samuelson, winner of one of the first Nobel Prizes for Economics (related video) in a category all his own: “The Worldly Philosopher”.

We’ll revisit the themes in this book in the near future.  But for now, we leave you with this interesting observation made by Bernstein during a speech at the fall 2006 meeting of the venerable “Q-Group“:

“In the first version of Capital Ideas, there was a lot theory but little in the way of applications in practice. In working on my new book about Capital Ideas, I could not find a single new theory to compare in importance with those I explored over fifteen years ago. Even potential competitors like Arbitrage Pricing Theory or chaos theory have faded into the background.

“On the other hand, practical applications derived from these theories are everywhere, from sophisticated applications of mean/variance to techniques designed to separate beta risks from alpha risks – to say nothing of the bewildering complexity of new products in the derivatives markets and the dominance of those markets over many aspects of investment decision-making.”

Capital Ideas Evolving reaffirms Bernstein’s position as one of the best connected guys in the world of alpha-centric investing.  So note to Peter: please add us to your linkedIn or Facebook friends lists.  

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