Free Market Investing

A Foundation Built on Evidence

Most investment decisions begin with a belief.

Some believe successful investing comes from predicting markets, picking stocks, or finding experts who possess special insight.

Free Market Investing begins with a different belief:

Markets work.

Rather than relying on forecasts or speculation, Free Market Investing rests upon decades of scientific research and three Nobel Prize-winning breakthroughs that transformed the study of investing.

These discoveries provide investors with something more reliable than intuition or opinion:

Evidence.

Efficient Market Hypothesis

Eugene Fama

Current market prices reflect the collective knowledge and expectations of millions of buyers and sellers around the world.

Key Ideas

Information is quickly incorporated into prices.
Future news cannot be known before it occurs.
Consistently predicting market movements is impossible.
Markets reward investors for participating, not for forecasting.
Stock picking and market timing become unnecessary.

Modern Portfolio Theory

Harry Markowitz

Risk and return are inseparable, but diversification allows investors to pursue returns more efficiently.

Key Ideas

Diversification matters.
Risk can be intentional, not accidental.
Assets must be evaluated by how they affect the entire portfolio.
Asset allocation is the primary determinant of investment outcomes.
Investors can pursue the highest expected return for a chosen level of risk.

Three-Factor Model

Eugene Fama and Kenneth French

Research identified three dimensions of equity returns that help explain the majority of long-term investment performance.

Key Ideas

Exposure to equities has historically provided higher expected returns than fixed income.
Smaller companies have historically delivered greater returns than larger companies.
Value companies have historically outperformed growth companies.
Expected returns are related to risk.
Portfolios can be engineered using evidence rather than guesswork.

Together, These Three Discoveries Changed Investing

For centuries, science has improved our understanding of the physical world.

Likewise, these academic breakthroughs have improved our understanding of investing.

They allow investors to base decisions on evidence instead of emotions, on principles instead of predictions, and on discipline instead of headlines.

You don't have to trust a guru.

You don't have to trust the media.

You don't even have to trust your own instincts.

You can trust science.

Because successful investing isn't about finding someone who knows the future.

It's about building your financial life upon principles that have stood the test of time.

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