Of the three Nobel Laureates I’ve so far had the privilege of interviewing, Eugene Fama is certainly the most intriguing. A graduate in Romance Languages and a distinguished college sportsman, he turned his hand to economics and went on to change the way we see the global financial markets.
Fama is one of those people who polarises opinion. His forthright views have made him enemies, and from the glint in his eye when he talks about his work you suspect he rather enjoys being a figure of controversy.
Was he comfortable with the title Father of Modern Finance? I asked when I met him in Chicago. “I’m Italian”, he replied. “I prefer Godfather.”
Today’s post features two videos. In the first, Fama looks back on his career and the contrasting response he’s had to his work from the academic community and from Wall Street:
Of course Fama is most famous for the Efficient Market Hypothesis. It’s not surprising that so many people who work in the industry take objection to the EMH. Think about it; if it’s true, which I believe it largely is, it means that the vast majority of investment professionals add no discernible value. I certainly wouldn’t like it if someone said that about me!
Personally I find the EMH such an emotive and divisive issue that it’s a phrase I try to avoid. But there’s no escaping the essential validity of it. It doesn’t matter if markets aren’t perfectly, 100% efficient; in fact I’m sure they aren’t. The point is that markets are efficient enough to render trying to outperform them, either through stock picking or market timing, a waste of effort, time and money, as this second video explains:
Tomorrow: Painstaking Attention to Detail
(Featured image: ‘Palisades West, Dimensional Fund Advisors, Austin, TX’ by Roy Niswanger)