The Nobel Prize for Market Timing Goes to… Cliff?

According to the Efficient Market Hypothesis (EMH), the best – and perhaps only – way to outperform the market over time is simple:

First, claim that beating the market over time is virtually impossible. Then, take home $1.2 million for "proving" it.

That was Professor Eugene Fama's approach, anyway, after co-winning the Nobel Prize in economics.

Don't get me wrong. As a professional investor and portfolio manager, I believe Professor Fama's EMH has many valid ideas. But fundamentally, people like us (and Buffett, and Soros, and Rogers, and Lynch, and Einhorn, and Paulson, and Icahn, and Ackman) never swallow EMH whole.

Ironically, neither does Clifford Asness.

Why would one of Fama's brightest students decide to ditch EMH, and pick stocks and time the market instead?

Proving EMH "right" may be worth millions (to Fama). But proving it "wrong" is worth billions…

The First Step to Beating the Market

As you'll recall, the big news in finance academia last week was the awarding of the Nobel Prize in economics to University of Chicago professor Eugene Fama. The prestigious award was given to Fama for his work in so-called Efficient Market Hypothesis, or EMH. This is the concept that market participants rationally discount new information, nearly instantly, and that this makes it virtually impossible to "time the market" and/or outperform the broad stock market consistently over time.