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This Year's Noble Prize Winner in Economics is Also Good at Picking Stocks
University of Chicago professor Richard Thaler was awarded this years’ Noble Prize in Economics for his contributions to behavioral economics and finance, a field which he helped to found.
But it turns out that Thaler, the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago Booth School of Business, has also been able to leverage his theories in behavioral economics into a solid track record as an investor, as CNBC reports.
Behavioral economist Richard Thaler is principal at Fuller & Thaler Asset Management, which helps advise a $5.8 billion Undiscovered Managers Behavioral Value Fund. It has almost doubled the S&P 500‘s gains since the beginning of the bull market.
Class A shares of the fund (UBVAX) are up 512 percent from the beginning of the market’s climb on March 9, 2009, through Friday’s close. The S&P 500 has risen 277 percent to records over that time.
The fund is focused on small-cap stocks, with a large weighting on financials, which comprise 25 percent of the fund at the end of August, according to CNBC.
The fund’s six-fold climb since the beginning of the bull market also outstrips the 340 percent gain of the small-cap Russell 2000 index.
That said, UBVAX is fairly pricey to own, with net fees of 1.44 percent. The fund has also climbed only about 8 percent this year, falling short of the Russell’s 11.5 percent gain and the S&P’s nearly 14 percent rise.
But another Thaler fund, the Fuller & Thaler Behavioral Small-Cap Equity Fund (FTHSX), has outperformed those two benchmark indexes with gains of 14.7 percent this year.
Thaler co-authored the best-selling book Nudge with Cass Sunstein, which is centered on their “Nudge” theory that “suggests small incentives can prod people into making certain decisions,” as Bloomberg notes. While Thaler won the Noble prize “for shedding light on how human weaknesses such as a lack of rationality and self-control can ultimately affect markets,” Bloomberg details how the “Nudge” theory has been embraced by politicians across the globe.
The work has informed politicians looking for ways to influence voters and shape societies at a time when budget deficits limited their scope to spend and the 2008 financial crisis caught many economists off guard.
Former U.S. President Barack Obama and ex-U.K. Prime Minister David Cameron both appointed teams to study if behavioral economics could be used to save their governments money and drive economies. Behavioral policy making is now spreading through the world, from Singapore to Australia.
You can check out some of Thaler’s work here.