Famed Finance Expert Kenneth French Reveals: Most Dangerous Investor Fallacies

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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.
To see links or read the transcript of the episode, visit us at mebfaber.com/2024/04/19/kenne...
(01:09) - Welcome to our guest, Kenneth French
(03:27) - Investing in FAANG Stocks: Should You Expect Unexpected Returns? www.dimensional.com/us-en/ins...
(07:02) - Deciphering an investors skill vs. luck
(15:04) - Having an investment plan
(20:16) - The global market portfolio
(24:54) - Thoughts on gold and other commodities
(26:18) - Incorporating human capital
(32:04) - Ken’s thoughts on stock buybacks
(35:28) - Improving financial education
(40:02) - Disagreement, Taste, and Asset Prices: www.sciencedirect.com/science...
(43:57) - Ken’s most controversial opinion
(46:29) - Ken’s most memorable investment
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[@jays9870]

I wrote 23 years - thnx for the great discussion!

[@paulgilliland2992]

Amazing guest . Thank you.

[@jimjackson4256]

After the first sentence he had me.I don’t know who this guy is but he is talking sense.

[@ryantinney]

Wonderful discussion.

[@PSNnightmare]

Looking forward to this one!

[@professorwang]

one of the best.

[@StockMarketCaddie]

Great interview....mature perspective...thank you....

[@cliffpeebles9705]

If it takes 64 data points (annual returns) to be statistically significant, then this is another argument that favors indexing. Don't try to find the needle in the haystack to buy, just buy the haystack.

[@Bobventk]

Or tilt towards characteristics that are known to have higher expected returns and offer independent sources of risk

[@RaghuvirMohanta]

When you work on something that only has the capacity to make you 5 dollars, it does not matter how much harder you work - the most you will make is 5 dollars.❤

[@faysdt414]

People dont understand that the prices of things are never going back down. This inflation is deeper than we think. Those buying groceries are well aware that the real inflation is much over 10%. The increments dont match our income, yet certain investors still earn over $365,000 in stocks and assets. Wish I could accomplish that.

[@MeliszaMagalyMezaEspinoza]

Very possible! especially at this moment. Profits can be made in many different ways, but such intricate transactions should only be handled by seasoned market professionals.

[@hamzahamza-bz3rf]

Finding yourself a good broker is as same as finding a good wife, which you go less stress, you get just enough with so much little effort at things

[@vanillatgif]

Brian demonstrates an excellent understanding of market trends, making well informed decisions that leads to consistent profit

[@Faijan-zx5ov]

I'm surprised that you just mentioned and recommend Mr Brian Nelson. I met him at a conference in 2018 and we have been working together ever since.

[@antonomaseapophasis5142]

No, I did not write down 64. I wrote 10.

[@jethro_Jr]

brilliant

[@_Lightsoff]

Great Interview...but can someone explain how he got the 64 years number (spoiler Alert!!) at 9:42?

[@dmoon9037]

Would someone please clarify the term Prof. French uses at 38:00 ? Something about “valuate average” ? Thank you.

[@themebfabershow1017]

"value-weight(ed)"

[@Unknown-jt1jo]

What an amazing interview. K. French is an extremely sharp guy.

[@ryanconnolly6703]

One thing has always puzzled me about the global market portfolio. It’s pretty intuitive that things like options or futures contracts wouldn’t be included, but why doesn’t this also apply to bonds? If someone is long a bond, then someone else (whether a sovereign, corporation, municipality, etc.) must be short that bond, resulting in net zero bond exposure.

[@suckers0]

No, the counterpart to stocks and bonds is the issuer (say XYZ Co issues shares, then it's a liability of XYZ and an asset of the buyer). So if you buy a bond then your counterpart is the sovereign/corporate/whatever issuer - the previous owner just transfers this asset/counterpart to the buyer. It's different with derivatives like options and futures. There the issuer (e.g. option writer) is an individual/corporate that has created a financial contract, the price of which is based on the movement of the underlying instrument (bond, int rate, stock etc). So the buyer (e.g. of say an option) is dependent upon the option writer as the counterpart, not the underlying issuer of the instrument.

[@ryanconnolly6703]

@@suckers0 there’s a couple things here. First, equity wouldn’t be someone else’s liability, it represents your ownership in something (assets less liabilities). Secondly, the point about the bond issuing being the counterparty is exactly the point I’m getting at. If the market portfolio is what is held in aggregate by all market participants, then for everyone holding a bond, there is a counterparty (issuer) who is short that same bond.

[@suckers0]

@@ryanconnolly6703 equity is the issuer's liability - look at the issuer's balance sheet - and the holder's asset. You're misunderstanding the bond issue - it's the same as the equity: bond issuer records it as a liability, holder as an asset.

[@fredatlas4396]

Is Mr Faber an active or passive investor. And would he actually tell us if he had most of his money in low cost passive funds that track indexes. I had some individual shares in Aviva here in the UK. And there was a share buyback. And what happened was I lost some of my shares and was payed for them at a price they predetermined before the buyback tool place. So now I had less shares and some cash in my account. How the hell did that benefit me in anyway. If they really wanted to give something back to their shareholders, why not just give us an extra dividend payment, then we would have actually gained something

[@themebfabershow1017]

He wrote a post on how he invests: mebfaber.com/2022/02/01/how-i-invest-2022/

[@user-ys5qp4bq4s]

The US equity part of passive investing is great until the components' valuations stop making sense... tho better than 1998 when KO was trading north of 60x earnings. At least use a collar.

[@flymarbles4010]

I wonder if French has read any of the Swagger Mark Wizard books; he's always referring to Simon as if he's the only one he knows. What about Paul Tudor Jones? What about Druckenmiller? What about Dalio? But as French said, "my view of the way the world works is totally inconsistent with the way most active investors think about."

[@kenthughes4396]

Dalio’s returns have been terrible . Read the book The Fund by NY Times writer Rob Copeland.

[@mmm-cake]

Al Borland 🙌

[@gsu1972crew]

Doesn't the t-stat of years vary by the amount of alpha tested? For example, a t-stat to prove statistical significance of a 50 bp annual alpha would be much longer than a t-stat to prove significance of 500 bp? So the lower alpha you test for the more significant the time period to prove it? I want French to sick to the 500 bp of annual alpha and give us the relevant time period. My guess is much shorter than 64 years. In other words, there should be an inverse relationship between the amount of alpha measured and the time period needed to establish statistical significance.

[@Ks-zz9lh]

This man sound like he smoked allot of cigarettes. And you tell me he understand statistics 📊😂 just joking. Nice interview I liked it. I call this taking an intellectual fresh investing bath. Just set the record again of what is most likely happening.