You can’t beat the market. That, at least, is the advice we all encounter early on when first we try our hand at investing. Homespun though it may sound, the idea has academic roots: the Efficient Market Hypothesis, as the economists call it, holds that the prices in any financial market already reflect all available information relevant to what’s being traded within them. In the case of the stock market, for example, everything known — or indeed, knowable — about the future prospects of a particular company is already incorporated into its stock price, or might as well be. If the EMH is true, then it must also be true that nobody can beat the market, no matter how deep their experience or developed their instinct for picking stocks.
Nobel Laureate economist Eugene Fama, who’s done more than anyone alive to refine the EFM and keep it in circulation, appears as one of the interviewees in Tune Out the Noise, the Errol Morris-directed documentary above. So do a range of other figures, mostly septuagenarian and octogenarian, whose great success in their fields owes to their having trusted the wisdom of the market. All have been involved with the investment firm Dimensional Fund Advisors, which, since its founding in the early nineteen-eighties, has been one of the engines of change in its industry. In the first half of the twentieth century, investing had an almost mystical quality about it — a quality swept away by the “data revolution” of the second half.
That revolution was powered, of course, by computers. Most of Morris’ interviewees first found themselves placed in front of one of those hulking, inscrutable machines at some point in their tertiary education, more than likely at the University of Chicago. They learned to work those early computers’ punch cards and whirring reels of tape even as electronic computing itself first found its uses in civilization. Suddenly, though it demanded painstaking collection and programming work, it had become possible to examine stock market data and determine what patterns, if any, it contained, and whether any investor had consistently outperformed the average. The answers revealed would become the premise of not just “passive” investment firms like DFA, but also of the original creation of index funds like the S&P 500.
All this may not sound like the usual terrain of Errol Morris, whose previous documentaries have profiled everyone from pet cemetery operators to former U.S. secretaries of defense to Stephen Hawking. His films aren’t without their confrontational moments, though given that Tune Out the Noise was commissioned by DFA itself, it shouldn’t come as a surprise that Morris never shifts into interrogation mode (despite using his signature Interrotron rig to shoot the interviews). Despite claiming not to know anything about investing or financial markets going in, he finds plenty of overlap with interests that have long run through his work: epistemology, for example, and the nature of scientific revolution. After all, most any field has some connection to the inexhaustible subject of how we know, what we know, and what we can’t know. “People shrink from uncertainty, but it’s uncertainty that really creates opportunity,” DFA co-founder David Booth says to Morris. “What would the world be like if there were no uncertainty? I mean, pretty dull.”
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Based in Seoul, Colin Marshall writes and broadcasts on cities, language, and culture. He’s the author of the newsletter Books on Cities as well as the books 한국 요약 금지 (No Summarizing Korea) and Korean Newtro. Follow him on the social network formerly known as Twitter at @colinmarshall.
