The Rational Reminder Podcast Prof. Ken French: Expect the Unexpected (EP.100)
May 28, 2020
Prof. Ken French, a leading finance scholar from Tuck School of Business, shares invaluable insights into asset pricing and passive investing. He discusses the pitfalls of active management, citing reasons why it often fails to outperform. Ken reflects on market volatility, urging investors to rethink their allocation strategies, particularly during crises. He emphasizes the importance of a good financial advisor and explains his own reliance on one. Sustainable investing raises fascinating dilemmas on pricing and returns, making this conversation a must-listen for financial enthusiasts.
AI Snips
Chapters
Transcript
Episode notes
How Asset Pricing Models Work
- Asset pricing models predict expected returns using asset characteristics and factor sensitivities like market, size, and value.
- Sum those factor contributions to estimate a portfolio's expected return.
Avoid Chasing Active Managers
- Avoid most actively managed funds because, as a group, they underperform after fees compared with passive market portfolios.
- Don't chase past winners because flows dilute managerial skill and increase the chance of underperformance.
Use Crises For A Portfolio Gut-Check
- Use market downturns to reassess your personal risk tolerance, not to time the market.
- If volatility reveals you're more risk averse, adjust your portfolio permanently to match that tolerance.