Financial markets seem to be more confusing than ever. A valid question is, “do they need to be?” A significant announcement was made recently, about a 2013 winner of the Nobel Prize in Economics. A University of Chicago professor, Eugene Fama, was awarded the Nobel Prize for his work regarding the ‘Efficient Markets Hypothesis’ that he began back in the 1960’s, as well as his work on “market-capitalization and ratios that compare book value to market value are highly predictive.”
We have been following Fama’s work since 1998. It has shaped the Fiduciary Financial Partners investment philosophy, and has significantly influenced our fiduciary approach to financial planning. Fama is on the Board of Directors for Dimensional Fund Advisors, and DFA mutual funds are a cornerstone of our portfolios, so it’s worth reviewing his influence on our investment philosophy and portfolios. Let’s boil down this important research into four component parts to understand what this means to our clients.
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