16 July 2015

Fama and French Q&A

Risk and reward are inextricably linked. Decades of financial research provides insight into these risks. A scientific model developed by world-renowned financial economists Eugene Fama and Ken French shows that some risks are worth taking; others are not.

In this interesting Q&A published in Barron’s magazine, the pair discuss a recent Nobel Prize win and their theory of market efficiency.


Fama & French believe that the performance of your investment portfolio is largely down to three risk factors: how much you have in stock markets, and how much you have in two classes of shares – ‘small’ and ‘value’ companies. Fama and French’s ‘Three Factor Model’ proved that these shares do better than the market overall, so Carbon’s portfolios have a bias to these stocks to capture the additional return they deliver.

Stock-picking and market timing introduce a lot of extra cost and account for a very small proportion of returns. These are the areas where most advisers spend the majority of their time. Markets work, so we don’t try to pick shares or managers, or the best time to enter or exit markets: you are not rewarded for the extra risk this introduces.

We don’t pretend to have a crystal ball to tell us what the future holds – we don’t accept this in any other aspect of our lives, so why should we think it works with investment? We take the minimum risk required to achieve the target returns you need to meet your objectives.

You can find out more about our philosophy here.

Remember, if you found this blog interesting you can share it with your online community using the share buttons below.


Sign-up for our Carbon Catch-Up Newsletter


Sign-up for our Carbon Catch-Up Newsletter.

* indicates required

Carbon Financial will use the information you provide on this form to keep in touch with you and to provide updates and marketing. Please indicate below that you are happy to receive our updates in the future:

You can change your mind at any time by clicking the unsubscribe link in the footer of any email you receive from us, or by contacting us at We will treat your information with respect. For more information about our privacy practices please visit our website. By clicking below, you agree that we may process your information in accordance with these terms.

We use Mailchimp as our marketing platform. By clicking below to subscribe, you acknowledge that your information will be transferred to Mailchimp for processing. Learn more about Mailchimp's privacy practices here.

Contact us today...

We have offices in Edinburgh, Glasgow, Aberdeen, Perth and London. You can contact us at any of our offices, or by email.

Carbon Financial Partners Limited is authorised and regulated by the Financial Conduct Authority. The guidance and/or advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK.

The Financial Conduct Authority does not regulate some forms of tax advice.
Registered in Scotland #SC386400.
Registered Office: 61 Manor Place, Edinburgh EH3 7EG, Scotland.
© Carbon Financial Partners 2023

Client Account | Personal Finance Portal | Privacy Notice | Cookies