A few weeks ago, Dr. Eugene Fama, Professor of Finance at the University of Chicago Booth School of Business, was one of three researchers awarded a Nobel Prize in Economics. Dr. Fama has been a part of many groundbreaking studies in the realm of finance and is often referred to as the “father of modern finance.” His research has not only shaped the way many investment professionals view financial markets, but also inspired the founding of Dimensional Fund Advisors (DFA), a U.S.-based mutual fund company with roughly $315.4 billion in assets under management. Dr. Fama remains active with DFA, serving on its board of directors and investment policy committee. While most of the public may not be familiar with Dr. Fama or the abundance of academic research he has compiled over his career, his work has played such an important role in defining Truepoint’s investment philosophy that one of our conference rooms has long been named in his honor.
One of Dr. Fama’s most important discoveries is the Efficient Markets Hypothesis, which states:
- The market is considered “efficient” – not perfect, but sufficiently efficient that wise investors will recognize they cannot expect to regularly exploit mispricings.
- Everything currently knowable is already incorporated into prices – stock prices move only in response to new information.
- Since surprises are by definition unexpected, movements in stocks, and movements in the stock market overall, cannot be identified in advance.
Truepoint would like to congratulate Dr. Fama on this well-deserved honor and thank him for being a true pioneer of finance.