Jack L. Treynor

Jack Lawrence Treynor (February 21, 1930 – May 11, 2016) was an American economist who served as the President of Treynor Capital Management in Palos Verdes Estates, California. He was a Senior Editor and Advisory Board member of the Journal of Investment Management, and was a Senior Fellow of the Institute for Quantitative Research in Finance. He served for many years as the editor of the CFA Institute's Financial Analysts Journal.

Treynor was the protégé of Franco Modigliani and mentor of Fischer Black. Trained as a mathematics major at Haverford College, he completed Harvard Business School with distinction in 1955 and stayed on for a year afterwards writing cases for Professor Robert Anthony. In 1956, he coauthored a paper on capital equipment leasing. At Harvard, Treynor had been taught that the way to make long-term plant decisions was to discount the 20, 30 or 40 year stream of future benefits back to the present and compare its present value with the initial investment. Importantly, the discount rate should reflect the riskiness of the benefits. Treynor noticed, however, that when the stream of benefits lasted that long, its present value was extremely sensitive to the choice of discount rate; simply by changing the rate, a desirable project could appear undesirable, and vice versa. Treynor resolved to try to understand the relation between risk and the discount rate, and this was the impetus for his most famous "idea in the rough", the Capital Asset Pricing Model.

Treynor began working in the Operations Research department at the consulting firm Arthur D. Little (ADL) in 1956. In 1958, he spent his three weeks of summer vacation in a cottage in Evergreen, Colorado, and generated 44 pages of mathematical notes on the risk problem. From then on, he spent his weekends working on the paper in his ADL office. Treynor’s solution to the capital budgeting problem was that the proper discount rate is the one that the capital markets themselves utilize to discount future cash flows. This is the kernel of CAPM.

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