One of the most frustrating aspects of the active fund industry is its habit of making bold claims while offering no supporting evidence. Even more frustrating is the willingness of the financial media to keep publishing them. Attention to detail.
Occasionally such articles will quote some study or other, but almost invariably it turns out those studies are either conducted by that firm itself, or they at least commissioned and funded by it.
Contrast that with the evidence behind evidence-based investing — independent, peer-reviewed, time-tested evidence.
What’s most striking about DFA’s research is its focus on empirical data. Asked to summarise Eugene Fama’s contribution to our understanding of the markets, his University of Chicago colleague Professor John Cochrane said: “The core of Gene’s research is really facts. Gene’s theoretical framework is quite easy to understand — competition means that prices reflect information. What Gene did is like what Darwin did. Darwin had a simple theory — evolution by natural selection. We can all understand that. But he went out and put all the finch beaks together and wrote the big book and saw how every kind of animal fits into that. That’s what Gene did.”
In this first of two videos, Fama explains to Dimensional co-founder David Booth why he enjoys empirical research so much:
I love this next video. In it, Fama explains the extraordinary lengths to which he and his colleague Kenneth French go to ensure that every paper they produce is as good as it possibly can be. It’s a thoroughness and attention to detail that puts the “research” departments of the big active fund houses to shame:
Tomorrow: Small improvements make a big difference
(Featured image: ‘Palisades West, Dimensional Fund Advisors, Austin, TX’ by Roy Niswanger)
Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.
