An Interesting Look Back

Posted November 19, 2014

Do you find yourself doing this: taking a look back at what people said or expected from two or three years ago? Does it seem to stand the test of time? Or is it dated and circumstances have changed? Or is it just plain wrong? Or is it great wisdom?

I was looking back at the articles and blog posts on the Dimensional Funds website www.dfaus.com I uncovered a blog post that was a link to an article from Fortune Magazine, October 25, 2012. In it, they asked famous and successful people: What is the best advice you ever received? One of the respondents was Prof Eugene Fama, Nobel Prize winner (2013) at the University of Chicago. He retold the story of his Statistics professor he had while a graduate student in 1960. He said:

“You should use market data to understand markets better, not to say this or that hypothesis is literally true or false. No model is ever strictly true. The real criterion should be: Do I know more about markets when I’m finished than I did when I started?”

Perfectly said! Advice that has passed the test of time! In doing financial planning work, we also make use of statistics, and then build a financial plan as a software model. It is just that, a model, that lets us “know more about markets when we are finished”. The models are a wonderful guide, but can never be a prediction of the future. By creating the model plans, we have learned more, so we can help our clients!

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