Articles (85)

The financial services industry has evolved over the last six decades. What started as essentially a broker or salesman role for getting people access to publicly traded securities has transformed into an academic discipline. We have documented this evolution from its roots with ...Read More

Since the 1950s, there have been numerous breakthroughs in the field of financial economics that have benefited both society and investors. One early example, resulting from research in the 1950s, is the insight that diversification can increase an investor’s wealth. ...Read More

Since the firm’s founding in 1999, investor education has been one of the cornerstones of our business model. Understanding the link between investment knowledge and risk capacity, our commitment to providing empirical insight to how financial markets work makes our ...Read More

We take an academic approach to investing at Index Fund Advisors, Inc. We utilize an evidence-based strategy that relies on objective, peer-reviewed research that has been published in academic financial and economic journals. Using this research, we have created portfolios with ...Read More

Academics are a hallmark of the investment strategy that we recommend to our clients. While there are plenty of sales pitches professing some sort of new or “hot” idea on how to get rich quick, we rely on peer-reviewed academic research to guide the decisions that we ...Read More

As we approach the three year anniversary of Professor Eugene Fama winning the Nobel Prize in Economic Sciences, we thought it worthwhile to call attention to this article by his colleague at the University of Chicago Booth School of Business and son-in-law, Professor John H. ...Read More

The war has been long. Much longer than the World Wars of the 20th century, the Vietnam War, the Civil War, and even the war on terrorism. This war started in the early 1960s, when statisticians began digging into stock price data to find trends. To their bewilderment, there ...Read More

A recent report was released by ThinkAdvisor cited the recent increase in alternative investments making their way into defined contribution plans. According to Cerulli Associates, a research firm based out of Boston, “alternatives have long been used in defined benefit ...Read More

Jason Zweig is one of the few financial journalists who writes articles and books that actually contribute an investor's success in capturing the returns that markets have to offer. His books include  ...Read More

Charles Ellis is a prominent and successful authority in the investment world. Most known for his book, Winning the Loser’s Game, which is now in its 6th edition, as well as his infamous article published in the Financial Analyst Journal titled “The Loser’s ...Read More

This time of the year marks the 25th Anniversary since Professor Harry Markowitz, alongside Professors William Sharpe and Merton Miller, was awarded the Nobel Memorial Prize in Economic Sciences for his pioneering work in the field of financial economics. Specifically, Professor ...Read More

“If one of your New Year’s resolutions is to improve your personal finances, here’s a suggestion: Instead of picking up one of the scores of new works flooding into bookstores, reread an old one: A Random Walk Down Wall Street.” – New York Times If ...Read More

It is not uncommon to find financial pundits, analysts, financial advisors, or investment consultants that are willing to recommend indexing when it comes to a particular segment of the market; mainly, large cap and even mid cap companies within the United ...Read More

Why do we refer to our approach as evidence-based investing? As we introduced in our related paper, “Evidence on the Evidence,” we believe that the evidence – especially the kind that has been peer-reviewed and time-tested – is ...Read More

In our last piece, “Ignoring the Siren Song of Daily Market Pricing,” we explored how price-setting occurs in capital markets, and why investors should avoid reacting to breaking news. The cost and competition hurdles are just too tall. Today, we’ll explain why ...Read More

When it comes to investing (or anything in life worth doing well) it helps to know what you’re facing. In this case, that’s “the market.” How do you achieve every investor’s dream of buying low and selling high in a crowd of highly resourceful and ...Read More

On 1/27/2015, Apple released a spectacular earnings report for the first quarter of its 2015 fiscal year. Once again, it smashed through the analysts’ predictions, earning $3.06 per share vs. a consensus estimate of $2.60. Powered by the newly introduced iPhone 6 and 6 ...Read More

There’s little more frustrating than being stuck in a traffic jam, especially when you’re trying to get somewhere important. The same can be said for the way developing and third-world countries anxiously awaited what a changing world economy had in store for their ...Read More

We have recently marked the 40th anniversary of Nobel Laureate (and father of random walk theory) Paul Samuelson’s Challenge to Judgment which originally appeared in the Journal of Portfolio Management. This was one of two articles from Samuelson that provided the ...Read More

According to Joseph Schumpeter, the father of “creative destruction,” Professor Irving Fisher of Yale University was the greatest economist the United States ever produced.1 James Tobin, another Yale Professor of Economics and 1981 Nobel laureate called2 Fisher ...Read More

Question: Index funds buy stocks "blind" without regard to company fundamentals. Do their activities contribute to mispricing of securities? Note: The question above was originally addressed in DFA’s Fama/French Forum. Professor Fama gave his typical terse but to the ...Read More

Question: Do valuation measures such as price-to-earnings or price-to-dividend ratios help predict future returns? Are they telling us anything now? Note: The question above was originally addressed in DFA’s Fama/French Forumon December 11th, 2008, in the midst of the ...Read More

Question: What is the relation, if any, between the practice of "front running" trades and the efficient market hypothesis? Note: The question above was taken from DFA’s Fama/French Forum. Here is their response: “First, if front running is profitable, there must be ...Read More

Question: We often hear the claim that some markets are less efficient than others—small company stocks, emerging markets, foreign exchange, and so on. Is there any evidence to support this assertion? Note: The question above was taken from DFA’s Fama/French Forum. ...Read More

The American Enterprise Institute for Public Policy Research (AEI) is a private not-for-profit think tank whose stated mission is "to defend the principles and improve the institutions of American freedom and democratic capitalism—limited government, private ...Read More

Since its inception, Index Fund Advisors has always strived to take a scientific or academic approach to investing. We follow the evidence (i.e., long-term returns data) to wherever it leads us and we live by the Latin motto of the Royal Society, “Nullius in ...Read More

"Active management is a zero-sum game, and that's before costs. That's not opinion, that's math." --Eugene Fama, 2013 Nobel Prize in Economics, Professor of Finance, Chicago Booth, as quoted in Barron's, "A New Dimension", January 4, 2014   Market Dimensions Eugene ...Read More

Beverly Goodman of Barron’s was accorded the high honor of being the first reporter to attend one of DFA’s Financial Advisor Colleges. The article that she wrote about her experience, A Different Dimension, shows that it was time well spent. Having the opportunity to ...Read More

The casino view sees the stock market as largely a place where investors place bets on the near future prices of stocks rather than on the numbers on a roulette wheel or the spots on a pack of ...Read More

In addition to the Nobel Laureates who have studied the stock market, thousands of academics also perform substantial and significant research in this ...Read More

After Scholes and Merton won the Nobel Prize in Economics for their and Fisher Black’s work on option pricing, whenever I was asked who among financial economists I thought would get the Prize next, Gene Fama topped my list of probable recipients.  Gene is especially ...Read More

Anyone who has paid attention to us at IFA is fully aware of how excited we are about Eugene Fama being awarded the 2013 Nobel Prize in Economic Sciences.  Yesterday, the event reached its culmination in the award ceremony followed by the Nobel Banquet attended by the ...Read More

This past Sunday (December 8th), Eugene Fama (along with Robert Shiller and Lars Peter Hansen) delivered his Nobel Prize lecture titled “Two Pillars of Asset Pricing.” This lecture should not to be confused with his acceptance speech which will occur on December ...Read More

"The current understanding of asset prices relies in part on rational investors and their concerns about risk and in part on psychology and behavioral finance." 2013 Nobel Prize Committee Announcement, October 14, 2013   “This year’s Prize in Economic Sciences ...Read More

One of the accusations constantly levied against 2013 Nobel Laureate Eugene Fama is that he uses his Efficient Market Hypothesis as a justification to denigrate all forms of financial regulation, including regulations governing trading by company insiders. A good example of such ...Read More

Eugene F. Fama was interviewed on CNBC's "Squawk Box" this past Friday about the recent financial crisis and financial regulatory reform.   Q. Are u ever surprised that certain things in the past we thought were settled are currently not settled...I guess I am referencing ...Read More

               Since we already devoted a full article to Eugene Fama, the first winner of the prize that we will discuss in this article is Robert J. Shiller of Yale University who had previously garnered a ...Read More

Stocks, Bonds, Bills, and Inflation (SBBI) is often characterized as the Almanac of returns data. This magisterial work originally produced by Roger Ibbotson and Rex Sinquefield is considered the go to place when information is needed on the expected returns and risks of a ...Read More

At Index Fund Advisors, we were absolutely thrilled to hear the announcement by the Royal Swedish Academy of Sciences that the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2013 is being awarded to Eugene F. Fama (University of Chicago), Lars Peter ...Read More

Now in its sixth edition, this book by Charles D. Ellis is undoubtedly one of the true classics in the genre of sensible investing. It is right up there with Burton Malkiel’s A Random Walk Down Wall Street and William Bernstein’s The Four Pillars of Investing. The ...Read More

"Forty years later, index funds remain the best wealth management choice for all investors."                               -Rex ...Read More

The Modigliani-Miller Theorems concern decisions about aspects of the accumulated savings ...Read More

Harry Markowitz was primarily concerned with the diversification of risky assets. James Tobin added the concept of combining risk-free assets, such as cash or bonds, with risky assets, such as ...Read More

Although not formally his professor, Ludwig von Mises may be considered a mentor of Friedrich von ...Read More

from the University of Chicago, Eugene Fama's graduate student, Michael Jensen, published "The Performance of Mutual Funds in the Period 1945-1965," in the Journal of Finance, ...Read More

In 1932, Alfred Cowles established the Cowles Commission for Research in Economics with the motto, "Science is ...Read More

In a case of alleged improper management of a trust account, Judge Samuel Putman presided with a decision that has become known as the Prudent Man ...Read More

At the heart of modern finance is the ability to calculate the present value of a future cash ...Read More

Mark Hebner recently sat down in Napa, California for a rare interview with David Booth, Chairman and Co-Chief Executive Officer of Dimensional Fund Advisors, to discuss the beginnings, evolution and impact of the renowned Dimensional Matrix Books. Not only did Booth talk about ...Read More

At Index Funds Advisors, we are sometimes asked if there is any company whose stock we would recommend buying. Our tongue-in-cheek answer is shown below: The brainchild of IFA’s founder and president, Mark Hebner, Capitalism Inc. neatly summarizes the universe of ...Read More

As an admitted math geek, I never tire of learning new tricks that simplify otherwise complex calculations. Far and away my favorite trick is known as “the rule of 72,” which states that if you are given an annualized average rate of return of X%, the estimated ...Read More

“I am convinced that if it [the price system of a free market] were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been ...Read More

Nobel Laureate William Sharpe is one of the academic linchpins of IFA’s investment philosophy. A year after winning the Nobel Prize in 1990, he penned a brief and elegant article1 showing that as whole, active investors must do worse than passive investors simply because ...Read More

While any Wall Street firm can publish a "research report" that makes an unsubstantiated claim (e.g., Apple's share price will hit $1,000 by the end of the year), academic research is held to a completely different standard: the peer review process. This process ensures that no ...Read More

The highly coveted Nobel Prize has been the pinnacle of academic achievement for advances in science and culture. Unfortunately, the Nobel Foundation believes in touting the exact opposite when it comes to the investment strategy for their endowment. In a recent interview with ...Read More

For anyone who works in the investment advisory business, particularly on the passive side, John (Jack) Bogle is a name held in the highest esteem. A pioneer in the realm of indexing, the founder and longtime CEO of Vanguard brought low-cost investing to countless investors, ...Read More

This is one of those weeks where we have so many juicy stories that I truly don’t know where to begin. How about another Madoff story? At last, we have the long-awaited and so richly deserved punishment of ten years in the slammer for Peter Madoff, the brother of ...Read More

In August of 1976, while everyone was dreading the potential epidemic of Legionnaires’ disease, Nobel Laureate Paul A. Samuelson wrote a now famous column in Newsweek titled, “Index-Fund Investing.”1 Samuelson noted the ascendancy of index funds based on ...Read More

Book collector Farzam Khassian shares his thoughts on his hobby of collecting rare investment and financial books. He has collected more than 1,000 financial books over the years and has inspired Mark Hebner to also start collecting these treasures. It is interesting to note ...Read More

The Road to Serfdom was written by Friedrich von Hayek in 1944. Friedrich von Hayek was a prominent Austrian economist during the twentieth century, and this book was one of his most important ...Read More