Hey Dr Fama, Here’s the NEW BREAKTHROUGH!!

In an excellent interview, published in the Financial Times, August 30, 2024, Robin Wigglesworth revealed the wonderful lunch that he shared with Nobel Laureate Eugene Fama. I encourage you to read the entire interview!

Wigglesworth writes, “Fama is arguably the world’s most famous and influential finance professor, thanks to his revolutionary efficient market hypothesis — that stock market prices at any time incorporate all available information, thanks to the cumulative and unending efforts of millions of investors constantly trying to outfox it. The paradox is that as a result of their efforts, the stock market is in practice almost impossible to beat.” 

Fama is correct, and many of his pupils have gone onto to wild success on Wall Street. Names such as, “Myron Scholes, Fischer Black, Michael Jensen and Richard Roll, as well as practitioners such as AQR’s Asness, and Rex Sinquefield and David Booth, the founders of Dimensional Fund Advisors”.

It seems funny, however, that while the EMH theory has led enormous growth of the Passive Investment business, many of these famous people have gone on to create business that are built on the “logic” of passive investing, which has been proven to be correct (as SPIVA clearly illustrates that NO ONE CONSISTENTLY BEATS THE MARKET), coupled with the EXACT OPPOSITE OF EMH - “their MYTHICAL ability” to outperform traditional indexes (S&P500 Index) by creating THEIR OWN INDEXES - to which they compare themselves.

Stupid is as stupid does.

OR

WHEN YOU CAN’T BEAT THE MARKET, HIRE US TO ADD COSTS, LOWER RETURNS,

WHILE CREATING A “NEW INDEX”

THAT PERFORMS WORSE THAN THE S&P500.

While LUDICROUS on it’s face, that is exactly what Wall Street Pushes these days!

Yet Wigglesworth states, ”EMH is the closest finance has to a “theory of everything”, and won Fama the Nobel Prize for Economics in 2013. But it remains as controversial today as it did when Fama first proposed it half a century ago.”

Fama has famously acerbic views on the investment industry, once quipping:

“I’d compare stock pickers to astrologers, but I don’t want to bad-mouth the astrologers”.

Wiggelsworth writes, “Fama is more willing to grouse about …the current state of financial economics.”

“The lack of exciting new breakthroughs and revolutionary theories saddens him. “A lot of big paradigms came in the 1960s and ’70s. But there’s no new options pricing theory, capital asset pricing model or efficient market hypothesis,” he says. “People are now basically working on the details. But it’s time for a big jump forward.”

We’re here Dr. Fama!! Feel free to ask us about the NEW BIG JUMP FORWARD!!

IT’S THE LOGICAL — PROVABLE, REPEATABLE -- SOLUTION, BASED ON YOUR HYPOTHESIS!!