Robert A. Haugen passed away Sunday, January 6, 2013 and I did not discover that until now. Haugen is perhaps best known for his book The New Finance in which he summarized important academic studies that proved that markets were not efficient all of the time and that its inefficiency could be exploited by value investors. Haugen then made the following analogy with respect to the difference between value investing and investing as if markets were efficient (paraphrased):
“Would you rather retire in Diamond Head Hawaii or Diamond Bar California? If you invest with value investing principles, you can retire in Diamond Head. If you invest as if markets were efficient, you will probably not be able to afford Diamond Head.”
The Haugen claim–backed by significant research–that was most shocking to those indoctrinated in the Efficient Market Hypothesis (EMH) was that value investors not only earned the best long-term returns, but that they did so with much less risk than the risk assumed by index fund investors.
Haugen’s book was a rare part of the CFA curriculum that criticized the EMH. It resonated with me. The fourth edition of The New Finance has been added to the Value Investing Bookstore tab above. It is out of print but can be bought through Amazon.