Broker Check

Another Nobel Prize Winner To Our Strategy

| November 06, 2013

Structured Wealth Advisors is pleased to report the addition of another Nobel Prize winner to our team.

Eugene F. Fama Sr., one of the original scholars and members of Dimensional Fund Advisors board of directors, now joins Robert C. Merton, Myron S. Scholes and Harry Markowitz as part of the team that helps shape our investment philosophy through our strategic partnership with Dimensional Fund Advisors and Loring Ward.

Our investment philosophy is simple: Capitalism works. You are better off working with the market rather than fighting the market through market timing, stock picking, hiring and firing active money managers or betting on the next hot IPO. Unfortunately, the vast majority of financial advisors, wealth managers and pension plan committees continue to steer their client's assets towards active investment strategies that attempt to "beat" the market.

This drives up the cost of investing, introduces more risk to the portfolio and typically forces most clients to lag the overall return of the market based upon decades of third party research. In 2010, professor Gene Fama published a paper with his colleague Kenneth French, professor of finance at Dartmouth, that determined that only 3 percent of active fund managers exhibited any skill when it comes to outperforming the market. The rest were simply lucky.

States Fama in a November 2010 interview with Bloomberg, "It is impossible to pick people in advance who can beat the market."

Gene is considered the "father of modern finance" and the creator of the Efficient Market Hypothesis, the Random Walk Hypothesis and the Fama-French Three Factor Model. His work inspired the founding of Dimensional Fund Advisors by David Booth and Rex Sinquefield in a Brooklyn apartment in 1981.

As one of the principal scholars and members of the board of directors, Professor Fama advises the firm on its various investment strategies and is a frequent speaker at Dimensional conferences and seminars. His groundbreaking research influenced the creation of Vanguard Fund Group and the vast majority of index funds that are designed to track certain benchmarks without paying active money managers millions of dollars in excessive fees.

I’ll never forget the day I stumbled upon his capital market asset pricing model while starting out as a financial advisor in San Francisco. I was researching value investing strategies for clients and came across a used finance book on Powell Street that featured his three factor approach to investing for institutional investors who managed billions of dollars for pension plans. While it took me more than a decade to find a cost effective way to implement his research for my clients, it was definitely worth the wait.

The following links offer some insights into his original work and how his research has evolved over the last four decades from the Efficient Market Theory to the Fama-French Three Factor Model and the Profitability Factor that was recently introduced by Dimensional Funds. 

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