Modern Portfolio Theory It was formulated in the 1950 by Harry Markowitz. what is the main idea? A single stock is quite unpredictable or risky: we do not know for certain whether a stock will go up or down. But we may combine several stocks, in order to reduce risk as much as possible. DIVERSIFICATION. when a given value of stock goes down another goes up. Combining assets is the main idea: it is the same as the black-scholes Model.