Professor Eugene Fama on the Volatility of Premiums

“You don’t get premiums for nothing,” says Professor Eugene Fama, “They are there because you are bearing risk. And that’s the nature of the risk, you could have long periods of time when things just don’t work out. Short, recent periods of data really don’t tell you anything about whether anything has changed.”

Professor Eugene Fama, 2013 Nobel laureate in economic sciences, responds to David Booth’s inquiry regarding concerns about value stocks around the world underperforming growth stocks for the past 10-ish years.

“Even the market being below the T-bill rate for ten years, I mean, that happens.”

Why does it matter?

It matters because it can help you determine your asset allocation.

Keep these points in mind:

  • The best course of action is to maintain a diversified portfolio that is regularly rebalanced—something we consistently do for our clients.
  • A properly diversified portfolio—geared toward your age specific goals and risk tolerance—is the best way to weather a market storm.

About Christopher Jones

Christopher Jones is the Founder and President of Sparrow Wealth Management, a fee-only financial planning and investment management firm. Before entering the investment field, Chris was a management consultant for Deloitte Monitor. He graduated summa cum laude from Brigham Young University with a B.S. in Economics and a minor in Business Management.

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