The Eugene Fama Wave Reaches ESPN

One of my favorite articles to read is Tuesday Morning Quarterback by Gregg Easterbrook. I originally found the article due to my love of sports, but what keeps me going back for more is the author’s frequent sidetracking into non-football related issues such as the space program, environmental policy, global warming and science.

Therefore, I was not stunned when Mr. Easterbrook provided his take on the recent Nobel in economics shared by professors Eugene Fama, Lars Hansen, and Robert Shiller. Along with many other pundits, Mr. Easterbrook noted the Nobel seemed to contradict itself as Fama and Shiller have different beliefs. While I encourage you to read the entire article, I wanted to share with you two excerpts of the author boiling down Fama’s work into everyday advice:

“Regarding Wall Street, never try to play the market by jumping in and out of stocks. You don’t know what’s going to happen to prices because no one knows. Never invest in a stock because you heard a news report that it’s shooting up — by the time you hear, the information that caused the rise has already been incorporated into the price. Do not buy because prices are rising, or sell because prices are falling. Stated another way, don’t listen to Jim Cramer. “Whatever money you may need for the next five years, please take it out right now,” Cramer said of Wall Street in fall 2008. Anyone who followed this “buy high, sell low” advice lost his or her shirt by cashing out when the Dow was at about 8,000. Five years later, the Cramer time horizon, the Dow was above 15,000.”

“In all investing, there are no secret formulas for instant wealth. Those stories about people buying old houses and flipping them for quick profits? There are stories about people winning Powerball, too. Those stories about secret stock-market formulas? If some money manager actually possessed a secret investing formula, he would not need clients. Bernard Madoff’s whisper of “I have a secret investing formula” was all any person should have needed to know to head for the door. Head for the door if you hear this from anyone seeking your money.”

Couldn’t have said it any better.

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