Dimensional Fund Advisors And The Efficient Market Religion

“If you put a thousand people in barrels and push them over Niagara Falls, some of them will survive.  And if you take those guys and push them over again, some of them will survive.  And they’ll write books about how to survive being pushed over Niagara Falls in a barrel.”

– Speaker at a DFA Seminar

“You can tell a story every day about stocks.  That’s what the media are all about.  They tell a story every day about today’s stock returns.  It’s businessman’s pornography.”

– Eugene Fama, the father of Efficient Market Theory and a DFA board member, at a DFA Seminar

“There’s one decision.  We decide how much to allocate to various funds, and then we’re done.  What am I going to do: Chart a stock?”

– Blaine Lourd, Efficient Market devotee and DFA Financial Advisor on his investment process.  He now watches SportsCenter instead of CNBC.

“In a perfect world, there wouldn’t be any stockbrokers.  There wouldn’t be any mutual fund managers.  But the world’s not perfect.”

– Blaine Lourd, ignoring the fact that somebody has to trade in individual stocks in order for them to “perfectly” reflect all of the publicly available information

Michael Lewis, the author of the Wall Street classic “Liar’s Poker” as well as “MoneyBall”, has a fascinating piece in the December issue of Portfolio Magazine.  Titled “The Evolution of an Investor”, it traces the path of financial advisor Blaine Lourd from Wall Street broker/stock picker to efficient market devotee and Dimensional Fund Advisors client. 

Based in Santa Monica, CA, DFA, along with Vanguard, is one of the behemoths of the efficient market approach with $153 billion under management.

For a brief refutation of Efficient Market Theory and the buy and hold index fund investment philosophy that goes with it, see my “The Myth of Buy and Hold” (November 13, 2007).