Discussion of Fama’s Views



Discussion of Fama’s Views

The widely known and accepted Efficient Market Hypothesis was pioneered the way by Eugene Fama. He stated that the markets are efficient on the basis of quantity and quality of information exposed by the corporations. Furthermore, he said that markets are of three types depending upon the prices at any point which fully reflects the information available. One of the strongest points is that all the information is available for the investors and this can eliminate the rate of abnormal earnings. However, a semi-strong point is that prices also reflect the accessible information. On the other hand, the weakest point implies that, although prices reflect the information only the historical (Pinto and Asnani, 2011).

Fama was from the University of Chicago and his work helped a lot in developing the modern theory which defines the working of the stock market. The existing literature reveals that he introduced the three factor model that aided in figuring out about, how much return can be achieved by Stocks. The existing reports about Fama help to explore a little about his personality as Fama can be brutally honest. However, his quotes are very helpful and informative as he reveals that a noise surrounding a manager’s performance that it becomes difficult for the manager but it is not impossible if someone can distinguish the luck and skills. Due to his performance, he has also rewarded the noble prize.

The Eugene Fama’s quote is worth reading “After costs, only the top 3% of managers produce a return that indicates they have sufficient skill to just cover their costs, which means that going forward, and despite extraordinary past returns, even the top performers are expected to be only as good as a low-cost passive index fund. The other 97% can be expected to do worse” (Fama, 1998). These lines can also guide me while being a researcher because good money can be made by the assessment of personal performance. Fama's quotes are capable to dismiss the financial crisis by avoiding the big recession as it is the trigger of crisis in the market. 

Discussion of Warren Buffett‘s Views

After reviewing the existing literature, it can be added that Warren Buffett a Fund manager holds a fascinated personality. However, the Buffett reigns and regarded as the greatest investor of the history. Furthermore, it is also realized that he is a gentleman who never worried about the making of money but he states that everyone should do best in whatever one can take on. Besides, the other charming quotes of Buffett one of his quotes sound to be concluded incorrectly. As he said “I’d be a bum on the street with a tin cup if markets were always efficient” (Buffet, 2016). On the other hand, if things are observed practically it can be realized that markets are frequently efficient. However, the success behind the Buffet is somewhere hidden behind this ambiguous quote.

In addition to this, by exploring the practical examples that can support the argument of Warren Buffet it is realized that the stock prices always decline before the concerned people came to know about that what is happening. However, the example of the declination of Lehman's stock prices can be considered as the people were unaware of the value of the company's assets. Afterward, Lehman blamed the government and then he tried to buy supreme loans. However, this scenario is accurately answered by Warren Buffett in the shape of the quote mentioned above. Warren Buffett is the third richest man in the world.

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