Kenneth French

In this case, Canada makes sense from a tax perspective.

This is backed, of course, by the research of Eugene Falma and Kenneth French and their seminal research on factor investing.

The portfolio that Joe invested in was a mix of 30% Canadian stocks, 50% US stocks, and 20% international and emerging market stocks.

He reduced his risk and sold that crappy bond fund while maintaining exposure to 100% stocks and increased his likelihood of higher long-term returns.

Absolutely.

Well, and doing the best you can, I think, led you to the University of Chicago and surrounded yourself with some great people like Gene Fama and Ken French.

And, you know, what are some of the things that, you know, as you launched your career, I know there was a part in the book where maybe AT&T asked you to start working on the first S&P 500 fund.

You surround yourself with these great people.

And Dimensional actually started in the back office of Vanguard in 1981.

And they were based out of factory research done by French and Pharma, which actually later on went on to receive a Nobel Prize in 2013.

And Dimensional was only providing mutual funds, which you could buy through investment advisors.

So essentially, you'll be paying an AUM fee.

They didn't want the funds to be limited to be behind a investment advisor.

The goal of Avantis was to create a fund which is available to the open market as an ETF so you and I can buy them directly.

That's exactly why I love Avantis and they follow the French Infama investment methodology.

Now the difference between the VTV Vanguard ETF versus the Avantis ETF is Avantis not just focuses on value, it actually puts a profitability filter on it.

But this critique came from within finance.

About 30 years ago, two professors at the University of Chicago, Gene Farmer and Ken French, decided to ask the question, does the CAPM work? Let's step back.

In the CAPM world, the only measure of risk that matters is the beta, right? Everything else shouldn't matter.

So if I take really long time periods and look at the correlation between returns you earn over long periods and the betas of companies, what should I see as a correlation? First, should it be positive or negative? beta stock should have high expect and it should in fact be close to a hundred percent right if the cap m is right over very long periods a hundred percent of the variation in differences in return should come from differences in betas you know what farmer in french found as a percentage explained by betas about nine percent which is a kind way of saying that we seem to be using a model that doesn't explain 91 percent of what's going on Now, I think part of the reason for that is the way in which people estimate beta.

I guess you could put it that way.

Gene Fahm and Ken French came out with their paper on three-factor model, which put you in a whole other – Dimension.

Oh, by the way, I have to say, whoever decided on the term dimensional, I love that name.

I mean, it's a great name.

That was the name of the article.

Yeah, okay.

And you remember Gene Fama and Ken French published an op-ed in the Wall Street Journal, it was like 2006, talking about the tax advantages of ETFs.

So I said, okay, here it comes, it's coming now.

The final leg in this discussion happened in the early 90s.

Two professors at the University of Chicago, Ken French and Gene Farmer, said, you know, why are we even trying to come up with a risk and return model? Why don't we let the market tell us what's risky and what's safe? They said, how will the market tell you? They said, let's look to see what kinds of companies have earned high returns in the past and what kinds of companies have earned low returns in the past.

So they looked at 1962 through 1990 data, and they found that over that period, small market cap companies earned much higher returns in the marketplace than large market cap companies.

They made a leap of faith.

Here's a second choice, and this is a choice that essentially got into being in the 80s when we had more access to data.

And the drivers of this particular school of thought were Gene Farmer and Ken French, two professors at the University of Chicago.

They said, it's true, CAPM binds you with all these assumptions.

Why do we want to build up these risk and return models based on elaborate assumptions Let's just look at the pricing and see what investors seem to be pricing in.

So I wanna start with, uh, we've spoken about this many times.

If you're a client of mine, you've heard me mention these gentlemen, uh, Eugene Fama and Ken French.

Uh, the Nobel laureates who I've really based my investment philosophy on, right? It's not my philosophy.

It's one I've adopted from people much smarter than me with a lot more wisdom and time.

That's what I see when I train other advisors.

But that's not what we're doing for you, and that's not really how you should look at it, okay? I don't need you going to bed at night memorizing all this stuff, but I want you to know that there is a very specific way we approach the construction of a portfolio and how we utilize different fund managers inside of that, okay? So let's just start with something called factor-based investing.

And this is Eugene Fama, Ken French.

This is really their work.