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- Опубликовано: 30 май 2024
- We are so happy to bring you all our 200th episode, and who better to have on the podcast on this auspicious occasion than the legendary Professor Gene Fama? This is one of the most jam-packed episodes we have ever recorded, with Gene providing concise and thought-provoking answers to our many, many questions. After delving into the foundations of Gene's work and philosophy, covering market efficiency, and its competing theories, Gene entertains our queries about a wide range of ideas and models, and generously shares the decades worth of wisdom that he is so widely known for. We also find time to talk about retirement plans, inflation, cryptocurrencies, and the influence of machine learning. Towards the end of our conversation, our guest touches on some more personal ideas about productivity, his career, his partnership with Ken French, and what success means to him at this point. For a landmark episode, with a true hero of the evidence-based approach to investing, make sure not to miss this.
Timestamps:
0:00 Intro
5:39 Market Efficiency
12:18 Asset Pricing Models
23:38 Expected Returns
28:49 Portfolio Structure
40:18 Inflation
48:25 Theory vs Practice
1:04:15 Crypto
1:16:41 Success
Links From Today’s Episode:
Rational Reminder on iTunes - itunes.apple.com/ca/podcast/t....
Rational Reminder Website - rationalreminder.ca/
Shop Merch - shop.rationalreminder.ca/
Join the Community - community.rationalreminder.ca/
Follow us on Twitter - / rationalremind
Follow us on Instagram - @rationalreminder
Benjamin on Twitter - / benjaminwfelix
Cameron on Twitter - / cameronpassmore
Gene Fama - www.chicagobooth.edu/faculty/...
22 in 22 Reading Challenge - Join the Rational Reminder’s 22 in 22 reading challenge!
Ben’s Reading Code (22 in 22 Challenge): 7XWESMK
Cameron’s Reading Code (22 in 22 Challenge): N62IPTX 
Хобби
We’ve gotten a few messages about the audio. The transcript is available at: rationalreminder.ca/podcast/200
We are also getting subtitles for our youtube video as we speak.
Hope this helps!
Congratulations on your 200th episode Ben and Cameron - So glad you finally got Prof Fama on the show!
Its here! The peanut butter (Episode 200) to my jelly (Episode 100). Awesome!
I studied finance under some of the best finance professors in one of the best business school in world. I wish one of them would have been as insightful as Professor Fama. I have been a fan since those days, around 2015-2016.
Best podcast ever! Eugene fama is such a cutie 🥰
Sabia que ia achar o HLDR3 aqui 👏
Whaaaaat! Professor Fama is in the house! I repeat professor Fama is in the house!
Sorry I am hyped to watch this!
Wonderful podcast. One of the best I've ever seen
Currently studying the Fama and French models in university so its pretty surreal seeing him and his insights in person. Great Job guys!!
Great to have Fama on; pity audio seems sub optimal
Big congrats to you.
And thank you for all your work. Eventhough I knew most of the, lets call it: "rules of how to invest properly" before i got to know your channels, i didn't apply them. I had so much fun picking stocks, liked dividends and found broad diversified ETFs just too boring.
Your content really helps to make the rational choices and honestly, the name of the podcast is very fitting lol. Thus, i am always appriciative when you put out content which includes psychological aspects.
Just buy the total market index
Liked this video before playing it. Absolutely incredible to have Fama on this Podcast👍🏻
Wow!! Professor Fama is the King!! Wonderful discussion!!
FANTASTIC. Congratz on 200. What an absolute legend he is as well. Will have to watch again before i comment but he had great insight on so many topics. On the crypto topic "I'm not buying" Ben laughs. Brilliant guys thank you
Awesome! Thx alot. Legendary
Congrats and what a amazing guest for episode 200!
Thank you! Fama and French at 300?!
Wow. Eugene’s concerns at 42:00 about the Fed’s ability to control inflation are terrifying. This episode has been humbling for me and I have less confidence that future returns will be as good as the past. I also still don’t completely understand why he doesn’t think it’s necessary to diversify into foreign equities. Great episode.
Amazing episode. Thanks for sharing this with us.
Wow that's a biggie! Can't wait to watch it!
Thanks for another great podcast.
I'd love for you to have Lyn Alden on sometime.
This was a great interview, but the audio was poor. Is there a transcript available?
Yes I def. enabled subtitles on this video which helped a lot.
Happy you enjoyed the episode! You can find our transcript here: rationalreminder.ca/podcast/200
Surprised by his comments on 1:16:00 - 1:16:40 about fixing the US dollar supply (making it deflationary) actually not necessarily being a bad thing!
I was under the impression that economists agreed that a slightly inflationary currency is a lot better than a deflationary one. I was hoping this part was explained and discussed in more detail instead of being glossed over.
Great podcast nonetheless! Keep up the good work and will definitely subscribe.
he just gave the case for Bitcoin without realizing it right after he said he didn't think it has that much real value with volatility
Well... in a closed economy, the main function of the value of the currency is mostly a wash. The biggest impact occurs when the value becomes too high for the unit to be used for the exchange of less valuable items. It's hard to transact in dollar if common items are less than a dollar. Of course we can, and do, just introduce currency divisions for this, down to the cent for the USD. This is assuming that when we inflate the currency, we do it proportionately to how much one had before the inflation. Inflation doesn't always work that way though, as freshly minted money can be inserted into different places in the economy that result in different levels of utility. But supposing we keep the original weights, then we aren't really concerned about inflation for a closed economy, but are mainly concerned with how it interacts with 1) contracts and laws that didn't consider inflation and 2) interactions with outside economies, i.e. foreign exchange and trade imports/exports. 1) is necessarily treated on a case by case basis and for 2) it can sometimes be an advantage to have a weaker currency, it depends which side of the trade balance you're on, etc... An example of 1) would be the minimum wage... it's beyond me why minimum wage isn't tied to inflation (I mean... I get why they do it, it's so that in real terms they frequently pay below any given established minimum wage until there is another political battle to raise it... but that's the greed talking rather than a fair and rational mind). Anyway, generally an inflationary currency matches better with an inflationary economy, and since we aim for growing GDP we would need an inflationary currency to keep our exchange at rough parity, otherwise scarcity of the means of exchange would make it difficult to carry out transactions of low value goods. The opposite may be desirable when a country has a shrinking GDP, or when it is advantageous for trade reasons... for instance, look up China's currency manipulation to devalue their own currency. I'll quote the US Department of the Treasury, "... China has a long history of facilitating an undervalued currency through protracted, large-scale intervention in the foreign exchange market. In recent days, China has taken concrete steps to devalue its currency, while maintaining substantial foreign exchange reserves despite active use of such tools in the past. The context of these actions and the implausibility of China’s market stability rationale confirm that the purpose of China’s currency devaluation is to gain an unfair competitive advantage in international trade." Though the department would later withdraw the label under Mnuchin. The trade benefit to China was undeniable, whether or not they had manipulated the currency.
Minimum wage is contested, and there are always opposition to it. So people who reluctantly agreed to have a raise did so because they know another round of inflation is round the corner.
Congratulations on your 200th episode. What a delight to see Prof Fama. Super psyched, liked before watching it.
Thanks for sharing this interview with the community, questions are great too 😃
Great interviewer, great interviewee
Amazing amazing amazing.
Holy shytttt
Congratulations on 200!
Great work inviting Fama 🔥🔥🔥
30:23 this is such a profound insight. it was not clear to me yet but this thinking opened my eyes to a new way of looking at assets.. realy amazing
Timestamps:
0:00 Intro
5:39 Market Efficiency
12:18 Asset Pricing Models
23:38 Expected Returns
28:49 Portfolio Structure
40:18 Inflation
48:25 Theory vs Practice
1:04:15 Crypto
1:16:41 Success
Wow awesome! Congrats!
Eugene mentioned I Bonds... US I Bonds are available only to US residents, citizens, and government employees, so they unfortunately won't be an option for your Canadian clientele. One can buy only 10,000 USD of I Bonds per year, with an exception for an additional 5000 purchased with money from one's tax return (there is an IRS form for this). They earn a rate of interest that is a base rate (0% for recently issued I Bonds) and a rate based on the consumer price index (CPI), which capture inflation. Of course CPI calculations lag inflation somewhat and are occasionally a bit gamed, but by and large they are a good way to protect the money in them from most of the downside of inflation. I Bonds cannot be exited for the first year, and exiting before 5 years results in a 3 month interest penalty. The CPI derived interest rate is announced once every 6 months. I got my I Bonds prior to the end of April, so I will get 7.12% for the first 6 months and 9.62% for the second 6 months, so 8.37% on the year, not too shabby for a low risk asset. Some people holding old bonds that have a higher base rate have composite rates as high as 13.39% for our current 6 month period.
A more accessible inflation hedge that can be traded on the markets are TIPS (Treasury Inflation Protected Securities). In these, you earn a fixed inflation rate, but the principle is adjusted for inflation each period. The US Treasury website does a good job of explaining both of these assets and how they function, with some worked examples as well. I think these may be accessible to Canadians, but don't quote me on that.
can the value premium realy go away? there is always a bottom 25% of stocks and where should they go?
He's the greatest
Literally today the economist published a piece about bubbles. 🤣🤣🤣
Very insightful ideas on crypto. It's put into words things that I've only passively thought about.
Incredible video!
Great episode!
I must admit that I'm a bit confused by his suggestion that a risk premium will go away if investors believe the asset isn't risky. Does this mean that stocks have only had higher returns than bonds historically because they have been arbitrarily perceived to be more risky? And if sentiment shifts should we expect bonds to deliver higher returns?
I don't think that's what he means. Stocks are riskier than bonds and deliver a higher expected return for that risk. But, if people perceive this higher expected return to be a free lunch they might irrationally bid up the price of stocks to such an extent that the risk premium goes away. They would effectively price stocks as if they are as risky as bonds even though they clearly arent. He also says that if this were to happen it would be a market infeffeciency and he doesn't believe in those.
@@Martin-qb2mw I see. I should have listened back before posting from memory at the end of the interview. Thanks for responding.
Damn. My wish on 100th podcast became true
1:07. “We’ll see.” I think we are seeing in the last couple days.
Fama is the GOAT
Thank you!
3 legends!
Regarding the crypto part. Actually, there is a market microstructure reason why settlement takes two business days. It, for instance, allows market makers to sell an asset they do not own or to pay later for a purchase.
when Prof. Fama said the expected return can be between 4 and 5% (for the stock market - historical on 100 years data) he means net return (after commissions, taxes, etc...) ?
Homie needs a microphone or a headset. I can't hear what he is saying with that room reverberance
Could you guys please subtitle Professor Fama? This is a very important episode and i don't wanna miss on what he is saying due to his microphone.
Click on the "CC" button for captioning.
I remember either Fama or French talked about what happens when indexing investment outweighs active. My understanding is now indexing is now piggybacking on the active. What will happen to fund flows? Will Vanguard and BlackRock dictate the market being the major index ETFs providers?
Ben explained elsewhere that's its not about the relative market cap, its about the amount of trading. Index funds don't trade much, so their impact on price discovery is still very limited compared to active.
Unreal.
He sounds smart. How much has he beat the market by though?
veryy cool😎
Rational Reminder community, what other podcasts do you guys listen to too?
community.rationalreminder.ca/t/what-financial-podcasts-do-you-listen-to/3632
The brief discussion on bitcoin was interesting but still the coverage on Rational Reminder has been shallow compared to the in-depth, and highly appreciated, analyses on other topics. That showed in the interview.
Gold in a vault (also) has no function, no value. The technological functions of gold don't justify its value, still gold appears to hold value. So dismissing bitcoin on having no intrinsic value is cutting too many corners. History is too short for bitcoin to have arrived at a more equilibrium stage. Hence volatility.
Stock to flow maybe an interesting area to do a deep dive into. As it is a framework just like CAPM. As there is no other commodity other than gold having such a low stock to flow ratio. Now challenged by bitcoin only. Yes copiable, but another 'bitcoin like network' would not copy a bitcoin. In the end of the day, it is the human trust in a system. Knowing there can't be more of something is an interesting angle to further investigate. And you touched upon this with Fama but it made people watching hungry for more
1:12.06 Limited supply and willingness to transact creates a value to a dollar
1:13:26. 'Do you need to have a fixed supply?' Asking the question is answering it
Sometimes bitcoin is compared with gold, a minute later with a dollar. People don't pay with physical gold either.
1:15:00. Having a fixed supply is an advantage'. IMO this has given gold the function is has today. And the price of gold fluctuates also.
Ideas:
Combining insights from Neil Ferguson (on the board of an asset management company) one may expect a new 'standard' given accelerated improvements in technology and the fact that humans have never been as connected as now ( 'The square and the tower; networks and power from freemasons to facebook'). Money standards break every 2-5 generations.
As Fama mentioned the importance of considering ALL assets it maybe interesting to have a closer look at other asset classes. Other suggestions maybe to get guys like Andrew Lo ('Adaptive Markets') and Michael Saylor on the show. Even Saifedean Ammous (read his books before dismissing or criticizing:))
I would really like to see these last 2 men be interviewed by you guys as you provide the only youtube channel fueled by academic insights. Saylor and Ammous appear on many shows but are never really challenged by the interviewers. The interviewers lack the in depth knowledge. You guys don't.
Thanks for all the content!
We are working on a separate series dedicated to Bitcoin and public blockchains more generally.
But gold doesn't hold value... it remains a volatile asset even after all these years. Not as volatile as bitcoin, but far from stable in the modern era. You touch on the main "value" of bitcoin correctly as "human trust in a system." Even at the moment, the people buying bitcoin are among the most zealous... but how are you going to get regular people to put faith in an asset that drops in value by 50-80% overnight? With no proper body vested in supporting it as a currency. When I put faith in USD, it is faith in one of the most powerful governments on the planet, that they will work to protect the value of my asset. And yes, yes, there is inflation, but the Fed is currently moving to take monetary policy towards reducing it, and if that turns out to be too slow, fiscal policy is also an option. There are plenty of scarce assets with no value, scarcity alone is not an argument for value. I would point out that people often do not transact in physical dollars either, we do quite fine exchanging values digitally. Bitcoin is roughly as much of an asset as trading cards... sure they're a bit more fungible, but prices are volatile and risky and you're banking purely on continued interest (i.e. faith) in that asset. So it's not that it's worth nothing... it's just that it's much more along the lines of being a gambling asset than a store of value or medium of exchange.
@@zvxcvxcz It is the scarcity. Not a security but a property. Not the same
I am surprised that Fama did not mention that the value of government currency is derived from things like the necessity to pay taxes in that currency. The laws related to the currency and the government apparatus enforcing them give value to the currency. This creates the initial demand that makes the currency the most marketable medium of exchange. All other alternatives are driven out through a positive feedback loop.
Your statement is at least debatable, but more likely false. This is all theoretical so there is no objective truth, but the commodity theory of money that you are referring to has not been a serious theory for decades. Money is the numeraire used to price goods and services, and the value of that numeraire is derived from the fact that people need it in order to pay their taxes. The relative value of the numeraire over time is related to the credit quality of the issuing government. I suggest checking out this episode we did with John Cochrane on this topic ruclips.net/video/mAB2eHwmRTY/видео.html
-Ben
@@rationalreminder If the government does not create the initial demand of the currency how does it bootstrap at all? There are many countries as examples of mismanaged currencies that resulted in hyperinflation and the almost complete dollarization of their economies. How does these zombie currencies get resurrected again?
Also why in most cases the area of use of a nation's currency almost exactly matches its borders?
Governments do not need to tax in order to spend. They create money out of thin air and give it value by demanding some back in taxes. Mismanaged currencies are not related to money supply etc., they are related to the finances of the government. Money is like short-term government debt. If government debt declines in value due to insolvency or weakening finances, currency purchasing power also declines. If a government improves its finances, the currency increases in value. National currencies are used within the borders of the nation state because it is the ability to pay taxes in that state, not some intrinsic worth as a medium of exchange, that gives it value. In the credit theory that I am referring to, money is not a medium of exchange. In commodity theory medium of exchange implies that barter is underlying all transactions and money is just the most convenient medium through which to conduct barter. In credit theory exchange is a credit relationship and money is the numeraire that prices the credits and debits involved in transactions.
Every consideration of Bitcoin you have to do it in perspective. Bitcoin isn't volatile per sé, it's volatile because it's new, few people own it and the ones who own it, they hold it with the conviction it will raise in price. So the rest is in the hands of traders who makes it so volatile. Nevertheless Bitcoin's volatility has steadily decrease through years. Will its volatility eventually become in the range of other traditional currencies? I don't know, everyone doesn't and cannot know. We just have to wait and see, like Internet in the early 90s. No one could tell the use cases we have now. In the meanwhile you can buy it if you want. P.s. illicit share of all cryptocurrency transaction volume only accounted for 0.34% in 2023.
Why do people talk about Bitcoin? It is a piece of garbage. There are cryptocurrency projects that have utility lol
Amazing interview - however it's clear that the professor hasn't studied crypto and it may not have been the best choice to ask the question to begin with.
He's less a proponent in the VT
The total world stock market index I get the feeling from past interviews he is more VTI