The nobel prize in economics was awarded last month and while it's inherently an academic issue, it also has concrete applications outside the ivory tower. The work of two of the three co-recipients appears to be at odds: Eugene Fama's research that underpins the concept of efficient markets and Robert Shiller's research that suggests markets can be inefficient. While you probably don't sit around and talk about prize-winning theories with your clients, these ideas point to habits you should recognize in their behavior.

Fama, a professor at the University of Chicago, was undoubtedly right in his assertions that you can't beat the market. Vanguard's John Bogle made his name on this idea — it's the reason that low-cost index funds and ETFs are the way to go for most mass-affluent investors. But Shiller, a professor at Yale, was also right in his assertion that prices can get out of whack. (The third co-recipient was Lars Peter Hansen, also of the University of Chicago, whose work was more technical but still on the same concept of asset prices.)

But how is the work of Fama and Shiller related? I believe it depends on how you define short-term and long-term.

Markets are pretty efficient in the long-term but can be wildly inefficient in the short-term. And the short-term is where advisors can provide value to clients. That's when stocks and funds get "mispriced" because investors are paying too much, or, equally damaging, not selling when they should.

I’ve written in this space before, the real issue is determing just when this efficiency stage kicks in. That is, when does short-term end and long-term begin in this context? It can be years for a major stock correction. After the stock crash of 1929, it took 25 years to fully recover; although, it took just a few years after the crisis. Or it may be just days for a misguided decision from one investor.

All of this relates to our cover story this month about the right asset mix for your clients. Rates are low and most of your clients aren't high-net-worth so while you discuss investment options and various annuity features, you also should try to manage their short-term thinking. Try to help make their short-term "inefficient period" even shorter.

Luckily for your business model, no matter how successful you are in adjusting your clients' short-term approach, there will always be a need for your skills. After all, we're always living in the short-term.

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