Learn lessons of Nobel laureates

Recently there was an article in Investment News about the new Nobel Prize winners in Economic Sciences and wanted to share with you the observations on

Viewpoint in their editorials.   Eugene Fama might not be a household name, even among some financial planners but the financial advisors associated with DFA

are very familiar with his work.  Eugene Fama was awarded the Nobel Prize for his analysis of asset prices.

Mr. Fama most famously eluciated and championed the theory that financial markets are efficient and stock price movements are unpredictable.  As such, active

money managers theoretically can’t outperform indexes.  Mr. Fama’s work has underpinned the growth of passive investing generally and index investing specifically.

Acording to Bloomberg News, at the end of last year, passive investments between exchange-traded funds and mutual funds had more than $2.6 trillion in assets.

“The laureates have laid the foundation for the current understanding of asset prices,” the Royal Swedish Academy of Sciences said in its statement announcing the winners.

These aren’t ivory tower hypotheses but real-life theories that have been observed in the markets.  And they continue to drive debate among other economists, portfolio managers and market strategists.

As such, advisors should be familiar with the works of the Nobel laureates, at least those of Mr. Fama, because it is likely that the research that won him the Nobel

Prize directly influences some, if not all, of the investment products and strategies advisers use.