The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails

Calm Words for Wild Times

All good journeys need a tour book to help travelers make sense of the trip. The stock market’s tour book was written at America’s top universities. Though the ideas are rooted in complicated mathematical formulas, the conclusions are easy to understand, even during a financial crisis. The key principles are: Don’t worry about stock market fluctuations. Don’t try to predict the stock market. The market is volatile, but it rewards the patient and the faithful.

In 1965, long before the cult of equities swept the United States, Eugene Fama was completing his doctoral dissertation at the University of Chicago. Though he remains largely unknown off Wall Street, Fama’s insights into the stock market helped give rise to the idea of buy-and-hold investing. Fama popularized the idea that the financial markets are efficient, and that it is difficult, if not impossible, for investors to beat the market. The Efficient Market Hypothesis (EMH) was the subject of his doctoral dissertation at the University of Chicago, where he still teaches. The central idea is that stock prices reflect all known information about stocks. His market was filled with “rational, profit maximizers,” which perhaps was true before technology and tax code changes opened the market to Main Street. Because the stock market is a discounting mechanism, always reflecting future outcomes, Fama believed that there was no way, aside from luck, to outperform the stock market. He was nominated for the ...