The Meaning and Importance of Fama and French
For us evidence-based investment enthusiasts, the expression “Fama/French” is as familiar as peanut butter & jelly. So when I saw an essay by French, “Things I’ve Learned from Gene [Fama],” it caught my attention.
It’s sometimes hard to remember that the phrase actually represents two people: professors Eugene F. Fama of the University of Chicago and Kenneth R. French of Dartmouth College (both of whom are Dimensional Fund Advisors board members).
I encourage you to read the essay for yourself. It is chock full of inspiring life lessons … even if you’re not much into the science of capital markets, I promise. Here are some of my favorite passages from the essay, and what I take from each myself:
On Time Management
“If you are not willing to do something now, don’t agree to do it later.” – Eugene F. Fama
French refers to this advice as “Gene’s first recommendation about time management.” We all struggle with that, and we all seem to fall into that trap, especially during the pell-mell pace of the holiday season.
I justify to myself: “Tomorrow, I’ll have more time than today, so if I push it off until tomorrow I should have more time.” Holy circular logic, Batman. Deep down, I know that when tomorrow comes, I’ll be even busier.
On Productivity
“Gene’s second recommendation is less well-known: Resist deadlines. Obviously, this advice is not intended for those who need deadlines to get anything done. But for the rest of us, there is no reason to let deadlines determine our priorities or make us work harder than we want.”
– Ken R. French
Here is an illustration of the thinking that distinguishes the greatest minds. (Many of Fama/French’s most radical challenges to yesterday’s untested assumptions have morphed into the “no duh” underpinnings that we now take for granted in efficient investing. Thus the Nobel Prize in Economics awarded to Fama in 2013.)
At first, refusing to procrastinate and ignoring deadlines may seem contradictory. But the combined power makes brilliant sense once you let it sink in (perhaps with some holiday eggnog). Deadlines alone shouldn’t drive our priorities as much as how important the task is to begin with.
On Simplicity
“Our job is not to write papers, our job is to get people to read papers.” – Eugene F. Fama
Coupling Fama’s quote with French’s observation – “When writing papers, [Gene] works hard to make his logical arguments and statistical tests as simple as possible” – it’s no wonder I am so powerfully attracted to this pair. Simpler is better has long been my own mantra too.
On Doing Your Research and Due Diligence
“One of the most important reasons for Gene’s success as an empiricist is his investment in the data. … After five decades of study, Gene knows more about financial data than Google.”
– Ken R. French
“Know the data” is an important lesson, especially when it comes to sensibly investing our life savings. It may be okay to go by gut feel when picking out the very best Christmas tree for your living room.
But your investment portfolio deserves to be guided by data more substantive than whether it seems bigger than your neighbor’s. Emotions and aesthetics are great for the holidays; rational evidence is your best guide for confident year-round living.
A Peek at Fama and French
Together, Fama/French have been inseparably instrumental in bringing us fascinating, data-driven insights about the science of capital markets during the past several decades of their collaboration. It’s fun to get a glimpse of them as individuals, as well. Thanks to Professor French for inviting us in.