Nobel is No Prize for Economist: Hedge Fund Manager
|January 14, 2014||Posted by Staff under Editorials|
Third Avenue Management’s chairman/founder Martin Whitman blasted Nobel Prize Laureate Eugene Fama. “I am disappointed that a Nobel Prize was awarded to Eugene Fama.”
Fama, a professor at Chicago Booth, won the so-called “Nobel” Prize in Economic so-called “Science” [Alfred Nobel left no money for economics, a field that has a long way to go before becoming a science] last year with Lars Peter Hansen and Robert Shiller.
Whitman called Fama’s work on Modern Capital Theory (MCT) “utter nonsense”, “sloppy science”, “plain stupid”, and “unscholarly.”
MCT, the hedge fund manager said, is of little or no help to those involved primarily with making investment decisions: value investors, control investors, most distress investors, credit analysts, and first and second stage venture capital investors.
MCT, not only misdefines markets, but also seems to be sloppy science. MCT acolytes forget that many managed funds do tend to outperform relative benchmarks, over the long term, on average, and most of the time. No attempt is made to study what it is that outliers do that make them outliers, e.g., Berkshire Hathaway, since this would entail the detailed analysis of portfolio companies and the securities they issue. How unscholarly!
Ed. Notes: The problem is bigger than just this one theory. In particular, it’s dishonest to say there is a Nobel prize in economics, and in general, that field is not a science. It can’t be. It does not make any distinction between your spending that rewards the efforts of producers, such as when you buy goods and services, and your spending that rewards the standing of privilege-holders, such as when you buy land and resources (often indirectly in the price of gasoline, for instance). When you pay producers, then they go and produce more. But when you pay mere owners, then they just and seek more rents and privileges. Your former payments grow the economy and your latter payments shrink the economy. Differences can’t get any more basic than that.