Great interaction. Having studied with Fama & French and also been an active manager for a long time I think that what Fama and Shiller are talking about is a bit different. Fama is more focused on the cross-section of stocks and less about overall markets (hence his uneasiness to define a market bubble). Within the cross-section of stocks, on average, stocks are fairly priced but there will always be outliers. Shiller, to my knowledge, is primarily focused on overall market issues and has found retroactive relationships that show a relation between, say, valuation levels and forward returns. Paul Samuelson said it best in my opinion - markets are macro inefficient, micro efficient. That's been my operating philosophy in terms of managing money.
Thanks for your insight? Based on your input would you suggest a retailer investor (good degree of experience), such as myself, to invest in ETF's or try and 'beat the market'?
This was truly amazing. I've been looking everywhere for a clear debate between both the ideas of Fama and Shiller on EMH, and this has to be one of the best. Really great video!
It seems to me that markets are very efficient over long periods of time where one can afford to wait out the ups and downs and less so over a shorter time frame where one might need or want to sell to enjoy life.
Why are they having such a hard time with this? The reason he says there's no such thing as a bubble is because, how do you quantify bubble? What metrics? How many people is the threshold to make it true, 50% believe it, 75% believe it, 99% believe it? What multiple of overvalued before it's called a bubble, 2, 3, 5x? There's no possible way to quantify what it is, how it's measured, when it becomes one. So he's not saying there aren't massive overvaluations, of course he knows there are. He just says YOU CAN'T QUANTIFY IT.
VTS - Brent Osachoff Exactly. It’s not there aren’t some situations where emotions drive prices but rather that there is no way of using public information to consistently have a higher risk adjusted rate of return after costs that is higher than the relevant benchmark.
Fama is right! Tell me the price is wrong and I'll have a million people telling it's right! 97% of active managers fail to beat the market after 15 years
I love this session. What I wonder is if we don't have less efficient markets now, due to lower barriers of entry to the market and more programs on the market. Such that now you have (and this just as an example) Mad Money says stock xyz is the new hotness, and 30,000 people go to their robinhood or webull accounts and place order, based only on that recommendation w/o doing any research or really understanding the driving factors.
Great interaction! I have been researching the work of Dr. Fama and also looking at the behavioral side of finance. I believe we could agree that markets are not fully efficient, they could be considered efficiently in a weak form and that anomalies driven by human behaviors exist. Beating the market is possible but it cannot be maintained at a constant level. With this being said, I believe since the prices react to information with some lag active trading is not efficient since beating the market is not guaranteed and the fees kill the returns. In the long run taking a passive approach will out perform the active investment strategy.
Folks mailed in the keys. Walked away. Many of the mortgages were basically if not literally fraudulent, made to those who couldn’t pay. Basically even the lower class participated in driving up real estate until the crash of 2008. Everyone made money unless you were holding the bag. The middle class chased stocks up in the stock bubble of 2000. Today’s stock market doesn’t seem like a bubble, valuations are quite normal. There’s froth in some of the IPOs, etc, but no one i know, except a few people on fintwit, and you pros, cares about stocks right now. But boy is liquidity loose!
What it means for the market do be efficient is exactly that people can't capitalise on it. In other words, either the market is efficient or people can capitalize on inefficiencies. Believing that some people can capitalise on inefficiencies is a complete rejection of EMH, it's not a middle ground stance. I also think that to be the case - it's basically trivially true that there can't exist simple, accessible and predictable inefficiencies in a competitive market, so whatever inefficiences can possibly be present has to be something most money can't exploit.
Great interaction. Having studied with Fama & French and also been an active manager for a long time I think that what Fama and Shiller are talking about is a bit different. Fama is more focused on the cross-section of stocks and less about overall markets (hence his uneasiness to define a market bubble). Within the cross-section of stocks, on average, stocks are fairly priced but there will always be outliers. Shiller, to my knowledge, is primarily focused on overall market issues and has found retroactive relationships that show a relation between, say, valuation levels and forward returns. Paul Samuelson said it best in my opinion - markets are macro inefficient, micro efficient. That's been my operating philosophy in terms of managing money.
Thanks Eric! Love the input!
Thanks for your insight?
Based on your input would you suggest a retailer investor (good degree of experience), such as myself, to invest in ETF's or try and 'beat the market'?
This is my favorite Compound video to date. Bunch of smart people sitting around talking shop is a great format. The Bernstein one is a close second.
This was truly amazing. I've been looking everywhere for a clear debate between both the ideas of Fama and Shiller on EMH, and this has to be one of the best. Really great video!
Absolutely loved this! I would enjoy watching more of these type discussions with external experts
Appreciate the feedback Wade!
It seems to me that markets are very efficient over long periods of time where one can afford to wait out the ups and downs and less so over a shorter time frame where one might need or want to sell to enjoy life.
Why are they having such a hard time with this? The reason he says there's no such thing as a bubble is because, how do you quantify bubble? What metrics? How many people is the threshold to make it true, 50% believe it, 75% believe it, 99% believe it? What multiple of overvalued before it's called a bubble, 2, 3, 5x? There's no possible way to quantify what it is, how it's measured, when it becomes one. So he's not saying there aren't massive overvaluations, of course he knows there are. He just says YOU CAN'T QUANTIFY IT.
VTS - Brent Osachoff Exactly.
It’s not there aren’t some situations where emotions drive prices but rather that there is no way of using public information to consistently have a higher risk adjusted rate of return after costs that is higher than the relevant benchmark.
Well CUBA ticker trading at premium didn't last day or two - it lasted for almost a year.
Great discussion guys, thanks for all the top notch material
Thanks Pablo!
I wonder what you guys think about valuations today given where the cape index is now?
Fama is right! Tell me the price is wrong and I'll have a million people telling it's right! 97% of active managers fail to beat the market after 15 years
This is a great discussion, thanks! Do you make these discussions available as audio-only? I didn't see it on the Compound Show feed.
Check out our Podcast! podcasts.apple.com/us/podcast/the-compound-show/id1456467014#episodeGuid=5d2dd1aec22626e723c2b757
Great conversation
I love this session. What I wonder is if we don't have less efficient markets now, due to lower barriers of entry to the market and more programs on the market. Such that now you have (and this just as an example) Mad Money says stock xyz is the new hotness, and 30,000 people go to their robinhood or webull accounts and place order, based only on that recommendation w/o doing any research or really understanding the driving factors.
great talk and comforting wrap up.
Great interaction! I have been researching the work of Dr. Fama and also looking at the behavioral side of finance. I believe we could agree that markets are not fully efficient, they could be considered efficiently in a weak form and that anomalies driven by human behaviors exist. Beating the market is possible but it cannot be maintained at a constant level. With this being said, I believe since the prices react to information with some lag active trading is not efficient since beating the market is not guaranteed and the fees kill the returns. In the long run taking a passive approach will out perform the active investment strategy.
There is a reason why economists are not billionaires.
So strange to see Michael so quiet
Folks mailed in the keys. Walked away. Many of the mortgages were basically if not literally fraudulent, made to those who couldn’t pay. Basically even the lower class participated in driving up real estate until the crash of 2008. Everyone made money unless you were holding the bag. The middle class chased stocks up in the stock bubble of 2000. Today’s stock market doesn’t seem like a bubble, valuations are quite normal. There’s froth in some of the IPOs, etc, but no one i know, except a few people on fintwit, and you pros, cares about stocks right now. But boy is liquidity loose!
What would Fama think about the efficiency of the current toilet paper market?
Hey Guys, revisit but only talk about GameStop and Silver.
Why did one get numerous calls daily offering a mortgage.? Now it is credit cards
Actually, Fama has said you can't predict bubbles. If you could, you could arbitrage them. You only see bubbles in the rearview mirror.
I would say Warren Buffett has a pretty good track record of avoiding bubbles.
isn't a main cause of a bubble the fear of missing out
I’m convinced that holding Bitcoin is a safer alternative investment than holding bonds
Markets are wildly inefficient but just that most people can't capitalise on it.
What it means for the market do be efficient is exactly that people can't capitalise on it. In other words, either the market is efficient or people can capitalize on inefficiencies. Believing that some people can capitalise on inefficiencies is a complete rejection of EMH, it's not a middle ground stance. I also think that to be the case - it's basically trivially true that there can't exist simple, accessible and predictable inefficiencies in a competitive market, so whatever inefficiences can possibly be present has to be something most money can't exploit.
They you guys aren’t social distancing!!! Oh, this is old.
Cochrane Will be the next Nobel prize.