Gene Fama and Ken French are two of the most respected names in financial science. They have spent decades studying financial markets and devising experiments to test questions from “what drives stock returns?” to “do forward rates of bonds actually predict future interest rates?” to “why do companies pay dividends?”
At Root, we endeavor to engage with research and opinions across the investment spectrum. While Fama and French certainly have a more academic bent, it is not an overstatement to say they have helped countless investors become better informed, capture more market returns, and feel more confident in their investment allocations.
This is a collection of their comments that have had an impact on the investment program at Root:
Gene Fama –
- “The efficient market hypothesis is just ‘a model,’ it’s got to be wrong to some extent. The question is whether it is efficient for your purpose. And for almost every investor I know, the answer to that is yes.”
- “The fallacy that people make, in looking at people like [Jim Simons of Renaissance]…is they pick them out after the fact. You have to pick them before the fact. You can’t take a game in which there were 10,000 people playing and pick out the winners at the end.”
- “What we are looking for is the minimum number of variables with the maximum amount of explanatory power.”
Ken French –
- “It appears by the behavior of many investors…[that] investors are so overconfident in their ability to pick winners that they are willing to systematically lose.”
- “People are crazy when they try to draw the inferences that they do from 3, 5, or even 10 years of an asset or any actively managed fund.”
- “Risk is uncertainty about lifetime consumption.”
CONSIDER
Ahmad Rashad: “Do you ever worry about letting down the fans?”
Kobe Bryant: “No, their expectations will never be higher than my own.”
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Let’s get after it this week!
Brooks
The examples provided are hypothetical and for illustrative purposes only. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. The information presented should not be construed as investment advice or a recommendation to buy or sell any security or implement a particular strategy.
Advisory services are offered through Root Financial Partners, LLC, an SEC registered investment adviser.