[rockrock]

DesertCat,

I am hardly an expert on Buffet but I do know that we mere mortals trade shares of stocks, I know he is an investor, and I know there is a difference.

Congratulations on straw manning Fama and French to death.

The 3 factor model is meant to explain the variation in returns of diversified portfolios. It does not say that small cap beats big caps. These are 2 different things - how an asset class works by itself vs. how performance is affected in a portfolio of diversified asset classes.

The question with FF, from my understanding, is explaining the high R-Squareds. International, Emerging markets and domestic equties have all been tested and it has been shown it is the exposure to the factors of size and growth that determines the vast majority of the returns of diversified portfolios.

Let me know if you are intersted in reading the academic papers and the source of the data sets.

The research problems with Fama and French (again from my understanding) are screening out the so-called "lottery effect" with small caps and the source of the factors - is it risk or anomalies or was the data just random.

Finally, didn't Buffet himself recently recommend index fund for most investors?

At the end of the day, the evidence that the return of a security is a reflection of the performance of it's asset class is something preached from Jim Cramer all the way down to the hallowed halls of Nobel Prize winning academics.

From there, it's an easy leap that what works best is a diversified portfolio of all asset classes. From there it's an easy leap that the best way to get proper diversification within each asset class is through index funds.