Eugene Fama Awarded Nobel Prize in Economic Sciences

 

We are thrilled to share the news that Eugene Fama, widely recognized as the “father of modern finance,” has been named a co-recipient of the 2013 Nobel Prize in Economic Sciences.

Professor Fama serves on Dimensional Fund Advisors’ (one of our strategic partners) board of directors and on its Investment Policy Committee, where he advises the firm on many of its strategies. He is also Chairman of the Center for Research in Security Prices at the University of Chicago Booth School of Business.

His work began in the 1960’s with the development of what’s known now as the Efficient Market Hypothesis, and since then, he’s worked extensively on understanding how financial markets work. 

It is rewarding to see such a high level of recognition given to Dr. Fama. His contributions have served as the bedrock of our investment philosophy since the day we opened our doors in 1999 and have shaped how we help our clients make investing less taxing and achieve their most important goals.

All of us at Lauterbach Financial Advisors congratulate Professor Fama on this great honor. 

Learn more: 

Wall Street Journal: A Nobel for the Random Walk of Stock Prices

Business Insider: Nobel Prize Winner Eugene Fama Explains Why You Have No Chance Of Beating the Market

Watch:

Eugene F. Fama: Economist. In this interview recorded in 2008 and conducted by Professor Richard Roll, Eugene F. Fama discusses his life, research, and contributions to the field of finance.

Is it Time to Sell All Your Stocks?

Burton Malkiel, professor emeritus of economics at Princeton University and acclaimed author of “A Random Walk Down Wall Street,” addressed this question on the opinion page of the Wall Street Journal today.  We recommend you read his entire column.  Some excerpts follow:

“I think not….I believe it would be a serious mistake for investors to panic and sell out.  There are several reasons for optimism.”

“First, I believe stocks today are cheap.”

“Moreover, the structure of U.S. corporate earnings increasingly reflects economic activity abroad…[which] is more important than the inability of Europe to get its house in order and the paralysis in the U.S. and Japan.”

“And for those who believe that the decline in the stock market reliably predicts a new recession, remember the famous dictum of the late economist Paul Samuelson: ‘The stock market has predicted nine of the last five recessions.’ “

 

“No one can tell you when the stock market will end its decline…. We have abundant evidence that the average investor tends to put money into the market at or near the top and tends to sell out during periods of extreme decline and volatility… the average investor has earned substantially less than the market return, in part from bad timing decisions. My advice for investors is to stay the course.”

 

For additional perspective, we recommend you read Larry Swedroe’s latest blog post,
How Markets Have Responded to Past Sovereign Downgrades.”   

Five Things to Keep In Mind During the U.S. Debt Crisis

Time is growing short and patience is wearing thin for investors as they contemplate the stalemate in Washington over raising the debt ceiling. As uncertainty over the standoff between Democrats and Republicans has intensified, the volatility in the stock market has ratcheted up accordingly. Many investors are growing increasingly fearful about the potential of a downgrade in the rating of U.S. government debt or, worse, the impact of an outright default. (more…)

What are we doing in our and our client’s portfolios about the debt ceiling debate?

We are not making any adjustments to our or to client portfolios in response to the debt ceiling debate. The market is well aware of the fact that the debt ceiling discussions are ongoing and US Treasury rates are still very low, indicating the market believes the debt ceiling will be increased and that financial market disruptions are unlikely. We believe that efforts to try to move in or out of the stock or bond markets in anticipation of what will happen are not productive.

Even if the worst case scenario materialized and the debt ceiling were not raised it is likely that it would be raised very quickly if there were any subsequent disruptions in the financial markets. Also keep in mind that this is a political technicality more than anything and not an issue with the capacity of the U.S. government to pay its debts.

Stock Pickers are Having a Bad Time Picking Stocks. Why We are not Surprised.

One of the most common questions at the beginning of the financial planning process from prospects in El Paso and elsewhere is: what are your favorite stock picks? Our response is that stock picking or market timing doesn’t work, and we’re backed by decades of research. However, the hype and noise of Wall Street keep trying to persuade investors by pouring millions of dollars a year in advertising to showcase their “super star” managers and their latest “hot” stock picks.  

Here’s further evidence that supports our belief that active management doesn’t work.

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New Articles: July 6, 2010

We just added two articles to our article library:

The Risks of Fixed Income Investing

Current State of the Municipal Bond Market

You may download them directly from our article library.

Weight Loss and Investing

Weight loss and wise investing share a very important characteristic: they’re simple, but not easy.

Let me explain.

Every year, Americans spend billions of dollars in weight-loss related products and services. Magazines that promote the new “secret Hollywood diet” fly off the shelves; strangely, people forget the last year “secret” diet in favor of the new one. “Diets” come and go, and products that promise to lose weight “without diet or exercise” are increasingly popular. People are willing to starve themselves to fit in a dress; if they succeed, they give their secrets to their friends, who will also buy the new miracle product. If they don’t succeed, more than likely the blame will go to the product or to other outside factor.

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