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An island of fundamental investing
An island at Stanford
McDonald was a lone pocket of fundamental analysis in a finance world overcome by efficient markets theory. His fall course was an introduction to investing, and students who did reasonably well in it earned a seat in his spring seminar.
Guest investors
In the seminar, twice a week, a different amazing investor came to the classroom to talk about their career, their investing philosophy, and how it evolved. Warren Buffett came every other year. The year one student took the class was a year Buffett skipped, because he was running Salomon Brothers at the time.
Teaching without preaching
McDonald walked through the core information about a series of businesses with no agenda, and he let people find their own way. In the spring he introduced a highly varied set of approaches without proselytizing, and the students unpacked it for themselves, which made it all the more effective. He could get nearly any speaker he wanted, and his standing as an island of fundamental investing in a sea of efficient markets theory made him stand out.
Why did efficient markets theory take over?
Eugene Fama's 1970 review at the University of Chicago argued that stock prices reflect all available information. Studies of professional fund managers found that, on average, they did not beat the market after fees. Those findings pushed academics and investors toward passive investing in the whole market. Vanguard launched the first retail index fund in 1976.
Why was Buffett running Salomon Brothers?
In 1991 Salomon Brothers faced a scandal over bids it submitted in US Treasury auctions. Berkshire Hathaway was its largest shareholder, and Buffett stepped in as interim chairman. A new chairman took over in 1992.
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