“Basically, we’re in a period where we have had an injection of uncertainty into the world, so speculative prices are going to go up and down in response,” he said. “People are continuously trying to evaluate information. But it’s impossible for them, given the amount of uncertainty that’s out there, to come up with good answers.”
“But that doesn’t mean the market is inefficient,” he added. “Markets can be rational without politics being rational or people always being rational. The problem with pricing is a question of how much is knowable right now. How’s this Russia thing going to work out? Who knows?”
I said I certainly didn’t.
“Has anybody got a better answer than that? I don’t think so,” he said.
You call that investment research?
I asked whether he’s been reading the analyses of Wall Street investment houses like Goldman Sachs or Morgan Stanley, or of those by independent market researchers. They don’t predict how the war in Ukraine will end. But they often recommend strategies for coping with tumultuous markets in what may be the start of a new Cold War and is certainly an era of high inflation, severed supply chains and extreme volatility.
“No, he said. “I don’t read any of that. It’s investment porn,” he said.
I was taken aback. “That’s a little harsh, isn’t it?”
“Maybe. But that stuff isn’t based on deep research. What do they really know?”
I pointed out that some of the people at investment and research firms know quite a lot. Some are economists trained by the University of Chicago and other fine institutions. He laughed. “OK,” he said. “I get it.”
In fact, along with his frequent research partner, Kenneth R. French, he is on the board of directors of Dimensional, a major investment fund company, and consults on its research, which relies heavily on his work. Much like Vanguard, the indexing giant, Dimensional eschews market timing and generally recommends long-term, diversified, buy-and-hold investing, precisely because it is so difficult to accurately forecast market returns.
I told him I’ve been receiving market analyses from Dimensional. “How does it look?” he asked. I assured him it was generally quite careful and didn’t make claims of omniscience that could not be supported.
