Professor Kenneth French on Risk, Return, and Rationality | #530
Today’s guest is Professor Ken French, the Roth Family Distinguished Professor of Finance at the Tuck School of Business at Dartmouth College. He’s written some of the most influential papers in finance alongside former podcast guest, Professor Eugene Fama. In today’s episode, Ken shares what topic he and Professor Fama disagree on. Then we get into a number of topics: what it means to truly be a long-term investor, the global market portfolio, misconceptions around stock buybacks, and much more.
Key Points
- Ken French emphasizes that the majority of investors should act as if market prices are correct, given the difficulty in consistently predicting market movements and the high likelihood of underperformance after fees and expenses.
- French discusses the misconceptions around stock buybacks, explaining that they are often a neutral or positive financial maneuver that allows companies to return excess capital to shareholders without destroying value.
- He advocates for the importance of understanding the time value of money and recognizing that for most people, investments should be unexciting, focusing on broad portfolios and a passive approach to minimize unnecessary risk and maximize long-term investment experience.
Resources:
Ken’s website: https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/index.html
The Best Way To Add Yield To Your Portfolio by Meb Faber: https://mebfaber.com/2017/07/06/best-way-add-yield-portfolio/
The Arithmetic of Active Management by Bill Sharpe: https://web.stanford.edu/~wfsharpe/art/active/active.htm
Things I’ve Learned from Gene by Kenneth French: https://www.dimensional.com/us-en/insights/things-ive-learned-from-gene
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For detailed show notes, click here: https://mebfaber.com/2024/04/19/kenneth-french/
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Past guests include:
Ed Thorp: https://mebfaber.com/2017/02/08/10017/ Richard Thaler: https://mebfaber.com/2021/08/04/e337-richard-thaler/ Jeremy Grantham: https://mebfaber.com/2021/02/08/episode-286-jeremy-grantham-gmo-what-day-is-the-highest-level-of-optimism-its-the-day-the-market-hits-the-peak/ Joel Greenblatt: https://mebfaber.com/2020/10/28/episode-260-joel-greenblatt-gotham-asset-management-nine-out-of-ten-families-in-the-top-fifth-of-the-income-chain-have-retirement-savings-nine-in-ten-in-the-bottom-fifth-have-none/ Campbell Harvey: https://mebfaber.com/2019/08/28/episode-172-cam-harvey-this-is-a-time-of-considerable-risk-of-a-drawdown/ Ivy Zelman: https://mebfaber.com/2022/03/30/403-ivy-zelman/ Kathryn Kaminski: https://mebfaber.com/2021/05/12/e310-kathryn-kaminski/ Jason Calacanis: https://mebfaber.com/2017/08/30/episode-69-jason-calacanis-little-secret-way-dark-art-becoming-truly-wealthy-massive-wealth/ Whitney Baker: https://mebfaber.com/2022/01/31/e387-whitney-baker/ Aswath Damodaran: https://mebfaber.com/2019/05/10/episode-155-aswath-damodaran-they-uber-and-the-ride-sharing-companies-collectively-have-disrupted-this-businessthats-the-good-news-the-bad-news-is-i-dont-thin/ Howard Marks: https://mebfaber.com/2018/10/03/episode-124-howard-marks-its-not-what-you-buy-its-what-you-pay-for-it-that-determines-whether-something-is-a-good-investment/ Tom Barton: https://mebfaber.com/2018/10/10/episode-125-tom-barton-the-biggest-problem-investors-have-is-things-changeand-they-dont-change/
… and many more.
Meb's invested in some awesome startups that have passed along discounts to our listeners. Check them out here: https://mebfaber.com/mebs-deals/
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Transcript
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