A Tribute to Jack McDonald

Regaled Stanford Business School in California long has been seen as a bastion of “efficient markets” thinking. Indeed, two finance professors, Bill Sharpe and Myron Scholes, have won Nobel prizes—a record for business schools—advocating that markets are efficient, that stock prices accurately reflect all information. But another Stanford faculty member, Professor Jack McDonald teaches that markets are not always efficient, that discrepancies can occur, allowing a serious student of fundamental investing to buy a dollar for 50 cents.

“Jack is lonely at Stanford,” both Buffett and Charles Munger have said of McDonald. He is the only professor at Stanford teaching fundamental investing, value investing, offering a bottom-up, company-oriented approach.

Using such texts as Benjamin Graham’s The Intelligent Investor, Phil Fisher’s Common Stocks and Uncommon Profits and Charles MacKay’s Extraordinary Popular Delusions, McDonald believes that gaps of value can be ferreted out. Those willing to do the homework of examining the intrinsic value, the real worth, of an enterprise and comparing it to its market price, may be able to capture the gap in value.

For the past 36 years—sort of like the Cal Ripken of baseball—McDonald has taught investment and finance classes, with a little help from his friends.

Buffett, Munger and Phil Fisher, who have all spoken to McDonald’s class over the years, say that while the market may be largely efficient, it is not always efficient. Buffett teaches one class every two years, Munger has spoken occasionally and Fisher gave his last talk to McDonald’s class in 2000.

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