During all of the commotion over the government shutdown and debt ceiling debate a few weeks ago, you probably didn’t hear much on the news about three American professors who were jointly awarded the Nobel Prize in Economics.
Now, you’re probably thinking, “Big deal! Why should I care?”
Well, since you asked…let me tell you!
One of those professors was Eugene F. Fama from the University Of Chicago Booth School Of Business. Mr. Fama is a pioneer in the field of finance and investing science. His research and scientific discoveries over the last 50 years or so on how capital markets work form the basis of much of our investment philosophy here at SageOak.
Watch the short video below to hear more from Mr. Fama himself as he talks about the evolution of modern finance.
(Video not working? Watch it here.)
As you can see, Mr. Fama is one of the “fathers” of modern finance. His research into stock prices, efficient markets, value and growth stocks, small vs. large stocks, and active vs. passive managers is integral to understanding how to construct investment portfolios that have the best chance of performing well over given periods of time.
1 + 1 does in fact = 2
While constructing an effective investment plan is definitely part art and part science, most advisors focus on the art and largely neglect the science. As Mr. Fama pointed out in the video, sometimes the hardest thing for advisors and clients to swallow is that 1 + 1 = 2.
Because of that, they waste time focusing on things research has proven they CAN’T control such as trying to pick the next “hot” stock, sector, fund, or country to invest their money in.
Fortunately, however, there are firms (like SageOak) who help investors focus on things they CAN control such as asset allocation, investment costs, and retirement withdrawal strategies, just to name a few.
Here’s an analogy to help illustrate this point:
Would you rather go to a doctor who…
A) Comes up with a diagnosis and treatment plan based largely on what his/her “gut” is telling them.
B) Comes up with a diagnosis and treatment plan based largely on what medical scientific research has proven to be true, while also drawing on their medical experience, knowledge, and training.
Yeah, that’s what I thought! Me too!
What does it all mean and why does it matter to you?
Unfortunately, the answer to that question is much more than we can cover in just one post, but you can get a sneak peak of a few of the guiding investment principles that firms like SageOak follow by visiting “Our Investment Philosophy” page. The information found there should give you at least a few ideas of what some of these investment concepts mean and why they matter.
In the meantime, please join us in congratulating Mr. Eugene Fama on his 2013 Nobel Prize in Economics. Thank you Gene for your tireless pursuit of investment truth over the course of your career and here’s to many more groundbreaking discoveries that will help our current and future clients accomplish their goals by making wise financial and investing decisions!