Eugene Fama

If some theoretical exercise says it has alpha but doesn't improve your portfolio, it's dead to you as far as I'm concerned.

A mutual friend told me that you're one of two TAs at AQR from Eugene Fama, famous Nobel Prize winner who popularized this idea of small and value.

Today, many people, many very smart people challenge that small and value still persist.

What do you say to that?

The science we had in our hip pocket with, we had all these academics, they were helping us out.

Gene Fama, Merton Miller, Myron Scholes, all of whom got Nobel prizes.

And so the people, we had a lot of credibility because of the people we were associated with.

But that isn't sufficient.

The ideas come from science, but then you still have to execute.

That's where I come out on how I deal with science.

I know in your life, Eugene Fama, you mentioned earlier, a big influence in your life.

I don't know if I'm saying this correctly, but perhaps the reason that you went the direction that you went or a strong part of it.

And you think about that and it's just, whoa, wait a minute.

How do we necessarily affect everything? Now, you go, well, what are they doing there? There is just a little bit of an impact, and they can try to, you know, maybe, and I've often said this, and Fama said this, Gene Fama, the University of Chicago guy that won the Nobel in economics in 2013, he talked an awful lot about who follows who, right? Or is it

whom? Is

that proper

Help me out here, Evan.

You know, who is it? Is it the Fed setting interest rates or is the Fed leading with because maybe they have a lot of information and they're trying to lead the way by saying, here's what we see going on in the future.

And Fama was pretty convincing in his argument that literally what happens is the market sets interest.

things a lot more than the federal government does when it

So as you mentioned, you were a grad student at the University of Chicago in the late 1960s, which was sort of the epicenter of this big revolution in finance that was going on.

And you sat in Professor Eugene Fama's class and learned about the efficient markets hypothesis.

What was it like learning from Fama? And when did it sort of click for you that markets might be more efficient than most people believed?

Well, basically, the first day of class, he kind of outlines his view of markets and how they work.

Now we're all really old.

But it's been a great career.

One of the anecdotes I really loved in the book was when you wrote about how you threw a party for Eugene Fama at the ABBA Museum in Stockholm, Sweden, in celebration of his Nobel Prize.

What was that like?

I love this because it brings me back to when I was interviewing at Dimensional and I got asked by our current, one of our deputy heads of portfolio management.

I was a PM for many years here at Dimensional and he asked me, how would you classify Dimensional? Are they active or are they passive? I remember hearing Fama, Eugene Fama before say that he has absolutely no respect for active managers.

I was like, he can't be active.

But the funds are designed to outperform benchmarks, which means by definition they aren't passive.

I mean, because doing this research I was doing, it was a grind for me.

You know, I was working for Gene Fama, and...

For him, he loved it, and he couldn't get enough of it.

So I've got to find something I really love.

He goes, well, if you're interested in being a professor, you've got to go to the University of Chicago.

Turns out he'd gone to the University of Chicago.

But he also gave me things to read, like Gene Fama's PhD dissertation, which was a landmark.

And, you know, you could sense the world was changing very rapidly.