The Tuck Profit

Fama Factors Out French: "I Did All The Work"

French School of Driving (circa 1985)

Eugene Fama: "I needed someone with a phenomenal ego but no intellect...my driving instructor, Ken French, was perfect."

Chicago, IL: After 15 years of sharing the credit for groundbreaking research with Ken French, Eugene Fama is on a mission to expose his former colleague, and himself. The result is an alarming behind-the-scenes look at how academic careers are made and broken.

"I hired Ken French in 1990 when he was a driving instructor in Winnetka. Chicago was pressuring me to partner with another researcher; I couldn't stand the idea so I hired a stooge. The man has never contributed a single idea to my research, and yet his name is constantly mentioned in the same breath as mine. On top of it all, the American Finance Association has nominated him as president-elect! That's a travesty and I won't have it."

Students Not Surprised
Several students in Professor French's Investments class spoke with The Tuck Profit for this article. According to Aaron Burgamy T'07: "It doesn't really surprise me, the guy doesn't seem to hold any strong opinions. Most professors are constantly pushing their own research...But with French, he doesn't seem to be aware of any research. He doesn't care one way or the other."

Johanna Kollar T'07 reflected: "On the first day of class, Professor French made us take a written exam on our driving skills. Later in the term, he shared the data in class and tried to convince us that we were overconfident and needed lessons. This was supposed to be an Investments course! What a fraud!"

French's habit of polling the class always bothered Tony Portera T'07. "He's always poleing [sic] the class for our opinyuns [sic] about major investment decisions. Last week, he wanted us to vote on whether he should buy a house in Austin. I mean, what is this: a lifeline on Who Wants to be a Millionaire? Why don't you teach us something, professor!"

The Relationship Begins

The relationship began in 1987 in Chicago. After several traffic accidents landed Fama in court, the absent-minded professor was forced to take driving lessons. Ken French ran a successful driving school near Fama's home, and agreed to teach the brilliant professor how to drive. According to Fama, "Ken convinced me that most Americans overestimate their driving abilities. He was quite persuasive."

At about the same time, the University of Chicago was pressuring Fama to team up with another researcher. Fama's efficient markets hypothesis (Fama 1966) was groundbreaking, but few knew how to trade on the ideas. Chicago was pressuring Fama to push his theories further, and felt a partnership with a practical mind would drive the best results.

So he chose a stooge. "I needed someone with a phenomenal ego but no intellect, someone naive enough to blindly support my aggressive challenge of the CAPM, but stupid enough to believe he thought of it himself. My driving instructor, Ken French, was perfect."

"...my assistant found a no-name community college in upstate New York that would send a Ph.D. diploma in the mail for $29.95..."

"The only challenge was finding a way to get some credentials for French. But that was easier than I thought. My assistant found a no-name community college in upstate New York that would send a PhD diploma in the mail for $29.95. We added an MBA and MS for an additional $19.95 each. After that, we were off and running!"

Fama and French published dozens of articles in various finance journals, mainly on their groundbreaking 3-factor model. The pair often appear at the top of "highly cited researchers" lists, despite the fact that most of the citations appear in their own work. (In fact, French's entry on Wikipedia caused much consternation after several WikiNazi's insisted that French's papers did not meet Wikipedia standards for "verifiability and original research.")

Fama Simplifies It For French
Over the years, Fama has played an active role in reducing the risk that French's mental shortcomings come to light and destroy Fama's goal of winning a Nobel prize. To keep it simple, Fama developed a list of basic rules for French to follow, and to repeat in his classes. Fama shared a few of these rules with The Tuck Profit, as well as the rationale behind them (see inset).

Rules for French	Fama's Rationale
Put all of your money into index funds.	"Everyone knows this is bullshit, but I couldn't afford to have Ken out there losing his shirt trying to beat the markets, especially after we started playing with other people's money at DFA."
Don't buy load mutual funds.	"A good salesmen can sell Ken anything, so I wrote this one down and had my assistant tape it to his phone."
Trust your wife's judgment.	"Ken's wife is a lot smarter than he is, obviously. I bribed Terry Odean and Brad Barber to fudge some data and put out a paper proving that women are betters investors than men. Ken's wife thanks me every day."
Just claim you're a Bayesian.	"I hired the best tutors at Chicago to teach him statistics. After 5 years, I gave up. The man is an imbecile. Then one of my Ph.D. students, a classic bullshit artist, claimed that as a 'Bayesian,' he wasn't bound by the same rules as everyone else. A lightbulb went off in my head. Obviously that would never fly at a Chicago, but surely it would work at that Truck School. I was right."
Sit on your hands.	"At DFA, every time Ken called in an order, the firm would lose money. So I teamed up with Odean again and he put out another paper: this time he proved that trading causes capital erosion. Can you imagine?"

French Comes to Tuck
The rules were effective, for awhile. But "the cerebral geeks at Yale SOM" quickly sniffed him out, and Fama had him transferred to MIT Sloan. "I figured the engineers wouldn't be interested in a class about stock picking." But Sloan students were also quick to recognize a fake. Fama was worried he would be exposed.

That's when Dean Danos of the Tuck School called. According to Fama: "This strange man from New Hampshire said he'd do anything to hire a published professor. I figured that a job factory for middle managers in the middle of nowhere would be the perfect place to hide him."

It was easy to convince French to make the move "once I told him that students were more concerned with challenging their classmates at pong than challenging their professors in class," said Fama.

Tuck Hires Bill Martin
The only condition imposed by Dean Danos was that a competent assistant be found to complete French's daily tasks and minimize any fallout from stupidity or ignorance. Enter Bill Martin, a successful financial professional with experience at several investment banks and the CBOT. Martin writes lesson plans, prepares slides, conducts research, and compiles data for the website.

Martin also attends every one of French's classes. After a few particularly embarrassing gaffes ("Buy Enron stock! Those guys are smart!" -fall 2001), Martin installed a voice amplification system with a remote control. In the event of a deviation from the script, Martin simply presses the mute button. "It's much easier for everyone if we work proactively," says Martin.

Professor French working on a four-factor model in his Ocean Drive residence.

"Obviously we're worried about the Professor's Ocean Drive escapades. But most famous academic researchers are cut some slack when it comes to a little hanky panky on the side. At least he's not propositioning his students."

Is French's Tenure Secure?
French has been quoted as saying "It would take an act of God for me to lose my job." Requests for comment from the dean's office went unanswered, but pressure is building for a response to the allegations.

Somewhere in Omaha, Warren Buffett and his insignificant alpha are laughing.