Farewell to the Eminent Economist
Paul Samuelson (1915-2009)
Recently, on December 13, 2009, we lost one of the
great economic minds of the past century in Paul Samuelson. As
America’s first Nobel Prize winner in economics
in 1970, he revolutionized economic theory with his
textbook Economics in 1948. While Samuelson
was first beginning to formulate his theories on market
behavior, he stumbled upon the thesis of Louis Bachelier,
a French mathematician who is credited as the first
man to write a paper using advanced mathematics to
study finance. It was these theories and formulas
that stirred Samuelson’s passion for using mathematics
in investing at a time when recklessly playing the
stock market was en vogue.
Samuelson once said, "Investing should be dull, like watching paint dry or grass grow. If you want excitement, take $800 and go to Las Vegas. It is not easy to get rich in Las Vegas, at Churchill Downs, or at the local Merrill Lynch office." Listening to an investor guess as it pertains to certain stocks is no different than playing roulette at the Bellagio. Because of Samuelson’s belief that the stock is more or less at its fair value due to our free market, your chances of it going up or down are not much different than betting on red or black.
It was on Samuelson’s leading and groundbreaking principles that index fund investment strategies began to take shape. He was an iconic leader of the indexing revolution that has led to the groundswell of institutional index investing. Investors across the globe have Paul Samuelson to thank for teaching us all that, rather than betting on the wisdom of the few, we should rely on the knowledge of the masses and invest in a capitalism-driven market that has been giving risk-adjusted returns of about 10% for the past 80 years.
Samuelson's Interview on Random Walk Theory
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