|Pathways Advisory Group, Inc. |
David Williamson, CFP®
As an office, we like to keep everyone informed. It’s an important part of our culture. One method, we call “cycle articles”, is to share articles of interest (by the end, a cycle article should have everyone’s initials on it). Recently, a cycle article about three recipients of the Nobel Prize in Economics came across everyone’s desk:
"David, who was awarded the Nobel Prize for Economics in 2013? And why did you cycle the article?"
Eugene Fama (of the University of Chicago), Lars Hansen (also of the University of Chicago) and Robert Shiller (of Yale University) were recognized together. I cycled the article because I believe Eugene Fama deserves recognition at the Nobel Prize level. The robust efficiency of markets is the cornerstone of our investment philosophy. Markets work extremely well. Those investors who try to “beat the market” do so at their own peril!
"When were you first introduced to the work of Eugene Fama? And what was your initial reaction?"
About 1992. The idea of market efficiency was beginning to appear on the radar of investment advisors. By 1994, I was convinced that picking the top (mutual) fund manager or trying to “time” the market was an inappropriate approach to building portfolios for our clients.
"Why should we care? How has Eugene Fama’s work affected the average investor?"
Unfortunately, his work has probably influenced less than half of investors. Most still believe in forecasting, timing and trying to identify tomorrow’s winners. However, I suppose, just as the joint award suggests, the collective efforts of all three recipients raised the bar in economics. This should impact all of us on some level.
Why should we care? Fama’s work lays the groundwork for a scientific, well-researched approach to investing that allows markets to work for the investor. This evidence-based approach has been and will continue to be fundamental to the (efficient) success of our portfolios.
Thanks David. Congratulations Professor Fama on the recognition of your life’s work!
Please enjoy a short video about the evolution of modern finance throughout Professor Fama’s distinguished career at the University of Chicago.
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Eugene Fama has been and continues to be an integral part of the academic engine that fuels Dimensional Fund Advisors (DFA). For the curious, here are a few additional links about Professor Fama’s work and Nobel recognition.
Tufts Magazine Article.
Eugene Fama and Robert Shiller discuss “bubbles” on NPR.
New York Times article regarding Fama’s Nobel recognition.