The concept of how the really smart money invests is centered around the idea that markets are efficient and that active stock picking is not a reliable strategy for beating the market.
Nobel Prize winners like Eugene Fama, Merton Miller, and Myron Scholes, among others, have contributed to this understanding and invest their own money in funds that follow rigorous academic research-based strategies. Dimensional Fund Advisors (DFA), founded by Rex Sinquefield and David Booth, both former students of Eugene Fama, is a firm that implements these strategies.
DFA emphasizes that investing is a science, not a speculative game, and that consistent market beating is unlikely due to the efficiency of the market. According to Fama and French’s research, value stocks, which are companies trading at low price-to-book ratios, have historically outperformed growth stocks by an average of 15.5% to 11% annually over the past 34 years.
For those interested in practical implementation, Larry E. Swedroe’s book, “The Only Guide to a Winning Investment Strategy You’ll Ever Need,” provides guidance on passive fund investing, suggesting that buying index funds for long periods is a smart strategy. A video titled “How The Really Smart Money Invests: A Brief History Of Investing” discusses the history of speculation versus investing and the efficiency of markets.
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