The transcript from this week’s, MiB: David Booth, Dimensional Fund Advisors Founder & Chairman, is below.
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MASTERS IN BUSINESS: David Booth
Founder & Chairman, Dimensional Fund Advisors
Bloomberg Radio — Transcript
ANNOUNCER (00:00:02): Bloomberg Audio Studios. Podcasts. Radio. News.
BARRY RITHOLTZ (00:00:07): This week on the podcast — what can I say? Legendary investor and founder of Dimensional Funds, David Booth, talks about his entire career, his philosophy, philanthropy, how he helped build DFA into a trillion-dollar fund, and why people refuse to just manage what they can and stay calm in the face of volatility and market events. I thought the conversation — and the book, Stay Calm — was fascinating, and I think you will also. David Booth, welcome back to Bloomberg.
DAVID BOOTH (00:00:53): Well, thanks for having me. It’s always a pleasure.
BARRY RITHOLTZ (00:00:56): I was gonna say the same — it’s always a pleasure. I know your background, but I’m gonna assume a lot of listeners may not be familiar with it, so I wanna start by going all the way back to your college and grad school education. You get a bachelor’s in economics from the University of Kansas, then you get a master’s degree focused in business, and then you go to the University of Chicago for a PhD. That very much sounds like academia was the future.
DAVID BOOTH (00:01:27): It really was, in the sense that, like a lot of kids, when you’re in college or even high school, you think, boy, I’d like to be a professor — ’cause that’s all you know.
BARRY RITHOLTZ (00:01:38): And it’s a great job. You’re on a campus, it looks like fun.
DAVID BOOTH (00:01:42): Back in those days, it was a good profession. I mean, there is a thrill of teaching kids, seeing the light go on. Kind of the same thing we have in business, when you have a client and finally —
BARRY RITHOLTZ (00:01:59): When they get it.
DAVID BOOTH (00:02:00): When they get it, you know, it’s very cool.
BARRY RITHOLTZ (00:02:03): So at Chicago, you pivot from a PhD to an MBA, and eventually you become the assistant, researcher, TA to some young professor who was not that much older than you — Gene Fama. Tell us a little bit about what led to that pivot.
DAVID BOOTH (00:02:19): Well, the backdrop is, in that period of time — the late sixties, early seventies — that’s when finance really emerged as a science, and it has continued to evolve, even today. And by that I mean, for something to be a science, you need testable hypotheses — don’t worry, I’m not getting too heavy into this. And before 1960, they just didn’t have the data to test things out. So in the early sixties, the University of Chicago developed this research-quality database, CRSP. The CRSP data started in 1926, and they’ve updated it, so now we have over a hundred years of data.
BARRY RITHOLTZ (00:03:05): When did Chicago first roll that out?
DAVID BOOTH (00:03:08): About ’63. Fama, my mentor and Nobel laureate in 2013, was in the PhD program at Chicago when Jim Lorie and Larry Fisher developed this database, and they turned it over to Gene and said, look, do some papers, do something with this data. So he had a head start on everybody, and for the next 20 years he was the most cited academic —
BARRY RITHOLTZ (00:03:38): Still one of the most cited academics.
DAVID BOOTH (00:03:40): Maybe the most ever, really, in finance.
BARRY RITHOLTZ (00:03:44): First mover advantage, for sure. So around the time you finish your PhD, Fama’s Efficient Market Hypothesis — that thesis was starting to gain traction, at least in academia, if not yet on Wall Street. Tell us a little bit about what was so attractive about EMH.
DAVID BOOTH (00:04:06): Well, it was incredibly exciting. First, let me just make a slight correction — I actually didn’t get a PhD.
BARRY RITHOLTZ (00:04:12): Right — you were working on your PhD, and then you got an MBA.
DAVID BOOTH (00:04:16): Yeah. And eventually I decided the world would be better served if Gene Fama did research and I tried to apply the ideas, rather than the other way around. So I walked into his office one day and said, look, I think I’d like to leave the program. So he calls up Mac McQuown out at Wells Fargo in San Francisco. Mac was in charge of applying quantitative methods for the bank, and one of the areas he worked on was investing. Mac had always wanted one of his students, so he recommended me, and Mac and I hit it off, and he invited me to come work for them. And so I decided to leave the program.
BARRY RITHOLTZ (00:04:57): So, the first job — did you ever get your MBA, by the way?
DAVID BOOTH (00:05:00): I got the MBA on the way out. They gave me an MBA.
BARRY RITHOLTZ (00:05:03): That was nice — that was a good investment on their part. You worked for Mac at Wells Fargo, right? In San Francisco. I didn’t realize you were on the West Coast for a while.
DAVID BOOTH (00:05:13): Right. I mean, this is the early seventies, so it was still kind of a Haight-Ashbury kind of thing.
BARRY RITHOLTZ (00:05:20): For sure. So Mac is the guy who’s often credited with creating the first version of an index fund. I think, if memory serves, it was for an institutional client’s pension or something like that.
DAVID BOOTH (00:05:33): Yeah, right. It was Samsonite.
BARRY RITHOLTZ (00:05:35): Samsonite, that’s right. Walk us through that. What was it like?
DAVID BOOTH (00:05:40): It turns out it was really pivotal in the history of finance, for a couple of reasons. One is, in doing all this research in finance, the fundamental question became: if you can’t outguess the market, how are you supposed to invest? Most people grow up thinking — and back in those days, everybody thought — that investing was about trying to pick the next winner stock, and time markets, and that sort of thing. And beginning in the mid-sixties, all of a sudden, with this burst of data, they could examine things like: are the professional managers that try to outguess the market worth the cost? And they’ve been doing this research for years, and there’s no compelling evidence that they’re worth the cost. In fact, I think the most practical assumption for all your readers is that the professional investors don’t seem to be able to beat the market. And that has a profound implication. And in fact — we can get around to more of the personal story — my parents grew up in the Great Depression and then fought World War II and so forth, and never had much money. But they never invested in public markets, ’cause they thought of themselves as outsiders, and the insiders would make all the money and just take advantage of them. So they never invested, and they had a little tougher time in retirement than they probably should have.
BARRY RITHOLTZ (00:07:18): And to be fair, the history before the post-World War II era was — they weren’t so wrong.
DAVID BOOTH (00:07:26): That’s right, they weren’t so wrong. So now, that’s the breakthrough. One of the implications of the new science is that the outsiders can do as well as the insiders — maybe better, once fees are considered — ’cause you can buy market portfolios very easily and very inexpensively now, and the pros don’t seem to be able to beat that.
BARRY RITHOLTZ (00:07:45): Well, the data on the pros — it doesn’t matter if you’re looking at Morningstar or SPIVA or DALBAR or any of the annual studies — is that in any given year, less than half of professionals beat the index. And I think that’s net of fees.
DAVID BOOTH (00:08:02): In fact, just yesterday there was a front-page article in The Wall Street Journal — only 27% last year.
BARRY RITHOLTZ (00:08:11): In the last 12 months. It was a particularly bad year, because one sector dominated, and if you didn’t have exposure to that sector, you badly lagged. Then the year before, the sector didn’t dominate. So you had to pick the sector, time it right, and stay invested.
DAVID BOOTH (00:08:25): Of course, if you do all of that, you don’t need our help.
BARRY RITHOLTZ (00:08:28): That’s exactly right. So Mac creates the first index fund — or one of the first. I’m curious, was there much of a reaction or any pushback from Wall Street, or did it just kind of slip by unnoticed?
DAVID BOOTH (00:08:43): No, there was a huge pushback. It was stuff they didn’t want to hear. I mean, they’d been claiming for years — oh yeah, we can beat the market, we can do 15 or 20% regardless of markets — all these claims. It turned out, unfortunately, they couldn’t be backed up by the data. That’s a very powerful lesson in developing arguments: if you have data and the other side doesn’t, it’s kind of an —
BARRY RITHOLTZ (00:09:09): Unfair fight.
DAVID BOOTH (00:09:10): Unfair fight. But it gets into a lot of issues we’ll cover as to why I’m still out trying to deliver that message.
BARRY RITHOLTZ (00:09:20): It’s so hard to believe. So let’s talk a little bit about that message. You and some of your Chicago classmates — Rex Sinquefield is one, and he had worked on an S&P 500 index fund at American National Bank. And then Larry Klotz was also a Chicago —
DAVID BOOTH (00:09:39): No — we worked together at A.G. Becker.
BARRY RITHOLTZ (00:09:42): And that was also in Chicago — in Chicago, but not the university. Right. And then Mac basically helped fund this: hey, we wanna apply everything we learned at Chicago and express the insights of Fama in an investible thesis. Right?
DAVID BOOTH (00:09:59): And the interesting thing there was that there were really two avenues being explored simultaneously. We had one group that I worked in, and we used as our primary outside consultants Fischer Black and Myron Scholes.
BARRY RITHOLTZ (00:10:14): More Nobel laureates.
DAVID BOOTH (00:10:16): Two more. It turns out, in working on our project, they developed the Black-Scholes option pricing model, for which Myron became a Nobel laureate — Fischer, unfortunately, had passed away, so he didn’t get it. The idea of our group was: okay, we accept that Michael Jensen and the work of others says these pros can’t seem to beat the market — so what are you supposed to do? By then we’d developed quite a bit of the science, and one idea, based on the models at the time — sounds silly now — was, well, if you have a portfolio that has a higher beta than the market, it should outperform.
BARRY RITHOLTZ (00:10:58): What does that mean — you’re just taking on more risk?
DAVID BOOTH (00:11:01): You’re just taking on more risk. That’s one way to beat the market: take more risk, but still being diversified. So that was the Samsonite account. They figured out a way of creating a higher-beta portfolio. Basically, they would start out with equal positions in all the stocks — they bought equal dollar amounts — and a portfolio like that should have a somewhat higher beta. Let me just refresh people’s memory: the market has a beta of one. So if you fluctuate more than the market, you have a beta greater than one, and if you fluctuate less than the market, your beta is less than one. And if you have a higher beta, you should outperform — that was the thinking. Incredibly naive. And we were kind of geeky back then.
BARRY RITHOLTZ (00:11:55): I think you guys are still a little geeky.
DAVID BOOTH (00:11:57): Still — well, yeah, I’ve learned to kind of appreciate that, actually. So that was one of the groups. The other group at Wells was the trust department. Mac hired somebody to head up trust investments, and he wanted to do an S&P 500 index fund.
BARRY RITHOLTZ (00:12:21): Still early seventies or so?
DAVID BOOTH (00:12:22): Yeah, still.
BARRY RITHOLTZ (00:12:24): So this is decades before BlackRock, years before Vanguard. This is very, very early.
DAVID BOOTH (00:12:30): So that’s what they wanted to do. And we go, look, as a scientist, you wouldn’t do an index fund. But I think it was some marketing genius who came in and said, no, you want an S&P 500 index fund — everybody can understand that, you can track the index. And here again, the pros don’t seem to be able to beat that index, so you can at least get the index return.
BARRY RITHOLTZ (00:12:53): Can’t get alpha if you’re not at least getting beta, right?
DAVID BOOTH (00:12:56): Yeah, right. So now, those are two different points of view. And the reason I emphasize that is that the S&P 500 index fund idea took off. That group left and changed hands a couple of times, and now that’s the cornerstone of BlackRock.
BARRY RITHOLTZ (00:13:14): It worked its way eventually to Barclays, and then BlackRock bought that whole business. And what are they — 14, 15 trillion, something like that?
DAVID BOOTH (00:13:22): No, I mean, it’s phenomenal success. I’m not arguing.
BARRY RITHOLTZ (00:13:27): And they basically proved the point: hey, it’s really hard to beat the market.
DAVID BOOTH (00:13:31): Beat the market, yeah. So hats off to them. Now, keep in mind — let’s go back to the other group, the one that I was working on that really became the basis for Dimensional. Eventually our group ended up irritating the trust department enough that they got rid of us.
BARRY RITHOLTZ (00:13:47): So this was you, Rex —
DAVID BOOTH (00:13:49): No, Rex wasn’t there at the time.
BARRY RITHOLTZ (00:13:50): He wasn’t? So who was the initial group?
DAVID BOOTH (00:13:53): Well, Rex was part of the initial group of Dimensional, sorry. And we brought people in to help us out — the first two people we talked to were Gene Fama, my mentor, on the research side, and Mac McQuown, who by that time had left Wells as well. Then we pulled together the other leading academics we worked with — people like Merton Miller, the 1990 Nobel laureate, and Myron Scholes, ’97, along with Fama.
BARRY RITHOLTZ (00:14:27): So out of all of this, the first fund that you launched when DFA began in Brooklyn was a small cap — or micro cap — strategy.
DAVID BOOTH (00:14:37): Right. We were the first people to use “small cap” as a term, meaning smaller companies.
BARRY RITHOLTZ (00:14:41): And this was based on some of Fama’s initial factors — small seemed to have persistent performance attributes.
DAVID BOOTH (00:14:50): Yeah — that was documented about 10 years later. So here we are, in some ways flying blind. We had a compelling argument, because in 1981, if you looked at large institutional investors, they weren’t holding the stocks of smaller companies in any meaningful way. So if you wanna be diversified, you want large and small, not just large.
BARRY RITHOLTZ (00:15:11): So was that the pitch to institutions? Small cap will diversify against the rest of your holdings?
DAVID BOOTH (00:15:18): Right. And so we got our first clients with that. So we’re off and running with a small cap fund, we had clients, and in talking to Fama, he goes, well, you know, we have a student here that did his PhD dissertation on just what you’re looking at — Rolf Banz. Rolf had done a study breaking down stocks on the New York Stock Exchange into size quintiles, largest to smallest, and the smallest quintile outperformed all the others by quite a bit over time. So, putting my marketing hat on, I think we’ll define small to be the smallest quintile of companies on the New York Stock Exchange — Mama didn’t raise a complete idiot here, you know. So that was how we got started. And there really wasn’t a counterargument, ’cause people couldn’t say, oh, I’ve got that covered — they knew they didn’t have small cap covered. So what we were able to do is provide access to small companies, and that’s really the basis of Dimensional. And about 10 years later, Fama, along with his colleague Ken French, developed this multifactor model. Back when I was at Wells, we just had the single factor, beta. So now we had a couple more factors.
BARRY RITHOLTZ (00:16:39): So Fama-French started with three, then it was five, and arguably there are just hundreds, most of which are tiny.
DAVID BOOTH (00:16:46): Yeah, most of which are tiny. And they kind of collapse to —
BARRY RITHOLTZ (00:16:51): Five to seven is plenty.
DAVID BOOTH (00:16:53): Well, three is plenty. We really have four or five now. But you get your big bang out of the first one, the market —
BARRY RITHOLTZ (00:17:01): The beta.
DAVID BOOTH (00:17:02): The beta. And the second factor, say value versus growth — that picks up a lot, not as much as the first. And then you get into size — small, that adds a little. Then you can add — pretty soon it’s just diminishing marginal utility, like everything in life.
BARRY RITHOLTZ (00:17:19): Quality, momentum — as you work your way down, each generates less and less of a bang. But what’s so fascinating to me is nobody had taken the approach that, hey, there is plenty of quantitative data to back this up, here is a testable thesis, a falsifiable thesis, and we can express these ideas in a portfolio. That, to me, was what set the launch of Dimensional apart from everybody else. Am I stating that correctly?
DAVID BOOTH (00:17:50): You got it. That’s it. And it shows you how powerful an idea it was, ’cause here we are starting a firm — we have no track record, I’m the first portfolio manager, I’d never managed stocks or even bought stocks before, and we’re operating outta my spare bedroom in downtown Brooklyn Heights. So you figure, how can you pull that off? Well, you can pull it off if the idea itself is so profound and backed up with incredible research. That’s hard to refute.
BARRY RITHOLTZ (00:18:28): So here’s the key question. Given how powerful that is — but at the time, fairly novel — what do you think Wall Street just missed about index investing? Because clearly there’s a financial opportunity, right? Whether or not your particular fund at the moment is selling performance and active selection, no one else looked at this and said, hey, there’s a business to be had here.
DAVID BOOTH (00:18:56): Well, back in those days — and fortunately this is changing now — basically nearly all financial services were distributed through commission salesmen. So Wall Street — basically, if you have a commission broker managing your money, I dunno what you’re gonna do, but you’re gonna be trading a lot, I can assure you. And if there’s anything that all this research pointed to, it’s that you don’t wanna trade a lot. Trading is a negative expected outcome, kind of like gambling in Vegas. But that’s the cornerstone of Wall Street. So they go, what do you mean, you’re telling me I shouldn’t be trading a lot? You’re ripping my eyes out. This can’t be true. And you go, hey, look, all I can tell you is we have logic, reason, and empirical evidence on our side. You have no data — all you have is bluster on your side. And over the long haul we’re winning, but it’s taken 50 years.
BARRY RITHOLTZ (00:19:54): Hard to make somebody understand something when their income is depending on them not understanding it, to paraphrase.
DAVID BOOTH (00:20:02): Right. And if you don’t have data to support it, then all you’re doing is bluster. And look, Wall Street firms in those days were very good at shoving product down people’s throats.
BARRY RITHOLTZ (00:20:13): Oh, for sure. I would tell you they’re still pretty good at it.
DAVID BOOTH (00:20:17): Well, I’m softening up, because along the way there was a development — an incredible development, almost as important as the development of the science — the fee-only financial advisor, which we started working with in the late 1980s.
BARRY RITHOLTZ (00:20:36): We are gonna get to that question. I wanna stay with Fama’s insights and your ability to express them in a portfolio. The fascinating thing about DFA to me is that it’s not simple market-cap-based indexing. The approach that you embraced early on was: how can we express something that’s a combination of what indexing would eventually become, married to a systematic, factor-based investing strategy?
DAVID BOOTH (00:21:12): Right. And by the way, early on, even going back to the days at Wells, we had these two groups — you know, you ought to index — and then the scientists saying, no, you can do better than indexing. And that’s 45 years — that’s been our message. As a scientist, you wouldn’t index, for a lot of reasons. One is you’re putting a constraint on yourself: I want to track an index. Constraints cost — in economic terms, that’s costly, and we can get into where the cost is. The other part of it is the silly way that index funds have to behave.
BARRY RITHOLTZ (00:21:54): Because of the announcements of additions and deletions — they telegraph it, right?
DAVID BOOTH (00:21:58): Telegraphed. Standard & Poor’s — if they add a new stock into their S&P 500 index today, it’ll go in at tonight’s closing price. If you are an S&P 500 index fund manager, then you want to buy that stock today at tonight’s closing price.
BARRY RITHOLTZ (00:22:15): Even though you know it’s gonna run up in anticipation.
DAVID BOOTH (00:22:18): Right — and even though you know that every other S&P 500 index fund manager out there is also gonna want that stock at tonight’s close. So that’s where — and probably all sciences are this way — there’s the science, and there’s the art of the science. You go to medical doctors, let’s say. They all study the same textbooks; well, some of ’em are just better at execution than others. And that’s what we’re talking about here. The simplest of all ideas: if you’re trying to buy a stock at the same time everybody else is, that’s probably not a good trade. Intuition would tell you that. And I think our most recent study shows that the runup is about 4% — when it goes into the index, the index pays about 4% more than a fair price.
BARRY RITHOLTZ (00:23:11): And the flip side is, the deletions have a tendency to outperform the S&P over something like 12 or 24 months. Same thing — people sell in advance, and by the time it’s actually deleted, it’s appreciably cheaper, and maybe that becomes a value.
DAVID BOOTH (00:23:28): Well, let me give you the downside of our approach, which is you have to have a certain amount of trust in the manager, because we’re not slavish. I mean, with indexing, you know exactly what they track — the gosh darn index. That’s what they said — that’s all they said they would do. And our idea is saying, look, we will use a little flexibility, a little bit of human judgment along the way. Not a lot — not like the old days of wild stock picking —
BARRY RITHOLTZ (00:23:56): Throwing darts.
DAVID BOOTH (00:23:57): Darts, or whatever. But we’ll use a little bit of judgment, and that requires you to have a little confidence in our ability to execute. So when we started, a lot of people said, look, how do we know you can execute? Because when you go out and buy or sell, you’re gonna be trading against professional investors. They think they have undiscounted information, if you will — something special, special knowledge — and you don’t. Okay, well, it turns out there’s a flip side to that, which is: if you’re an active manager and you think you know something special, you also realize the half-life of that is really short. Minutes, probably.
BARRY RITHOLTZ (00:24:43): Today it’s probably milliseconds.
DAVID BOOTH (00:24:45): Probably milliseconds. So if you wanna get rid of a stock, you want to get rid of it right now — at least by the end of the day. And so we come along, and we’re kind of indifferent. We buy 10,000 stocks — you know, on any given day, we don’t buy all 10,000 of ’em. We focus a lot on what’s trading easily that day. Even a small company stock, 20% of the time it trades a lot.
BARRY RITHOLTZ (00:25:12): In other words, you can use execution and volatility as a source of better pricing.
DAVID BOOTH (00:25:17): Better pricing, yeah. And that’s worked out over 45 years — the first 45 are the toughest, I realize. But still, people slap their forehead — that’s hard to believe, that there’s this professional money manager out there trading against you. It’s not that we take advantage of them. We provide liquidity, and our clients get the benefit of providing that service.
BARRY RITHOLTZ (00:25:47): And by providing liquidity, it means you’re willing to be a buyer at times when many other people are not.
DAVID BOOTH (00:25:54): But we’re not gonna pay retail for that stock. I mean — if you can talk to me, can you do something for me on the price?
BARRY RITHOLTZ (00:25:59): Take a little something off. Really, really interesting. Coming up, we continue our conversation with David Booth, founder and chairman of Dimensional Fund Advisors, talking about his brand-new book, Stay Calm: Learning to Embrace Uncertainty in Investing and Life. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.
BARRY RITHOLTZ (00:26:17): I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest today is David Booth. He is the founder and chairman of Dimensional Fund Advisors. His new book is out — probably by the time you’re hearing this — Stay Calm: Learning to Embrace Uncertainty in Investing and Life. So I wanna sum up the book in a sentence, and then we’re gonna really delve into it: “Uncertainty isn’t something to fear — it’s where possibility lives.” Ooh. Explain that.
DAVID BOOTH (00:26:59): That is a good question. Every now and then, you know, you write something down —
BARRY RITHOLTZ (00:27:02): By the way, I have a dozen fantastic quotes, and I’m gonna try and click through all of them.
DAVID BOOTH (00:27:07): No, it’s funny, ’cause you write it, and then you forget you wrote it, and then you go back and look at it and go, hey —
BARRY RITHOLTZ (00:27:11): That’s not bad.
DAVID BOOTH (00:27:12): That’s not bad, yeah. And let me tell you about a breakthrough that happened to us about 10 years ago. We realized that there are a lot of parallels between investing and your life experiences, and a lot of that has to deal with how you deal with uncertainty. You know, as you grow, you learn how to deal with uncertainty, and what you realize is uncertainty is what creates opportunity. If there were no uncertainty, you wouldn’t have the ability to progress. So it’s not about eliminating uncertainty — it’s about managing uncertainty. That’s true in life, and the reason I bring that up is ’cause that’s also true in investing. If there were no uncertainty — in other words, if all investing was riskless —
BARRY RITHOLTZ (00:28:12): I got some 10-year Treasuries at three and a half percent that you can hold and barely keep up with inflation.
DAVID BOOTH (00:28:19): Well, if there were no uncertainty in investing, every investment would have the same return — the riskless return, whatever that is. So in investing as well, it’s uncertainty that creates opportunity. And once people start to realize that, we go — let’s go back: how do you deal with uncertainty? Well, first off, you realize that life is not totally predictable. I mean, think back 20 years ago. Could you have predicted where you are today, or where you’ll be 20 years from now?
BARRY RITHOLTZ (00:28:57): Nobody in December 2019 was predicting a pandemic the next year — in a market that would scream higher. You could show it in every annual forecast we see — and we’ll talk a little bit about predictions in a minute — but the future is inherently unknowable.
DAVID BOOTH (00:29:13): And so embrace that uncertainty. That’s what gives us the opportunity in life and investing.
BARRY RITHOLTZ (00:29:20): So what do you say to people who are investors — hey, uncertainty creates opportunity — but how does the average mom-and-pop investor live through the regular 15, 20, 25% drawdowns we see all the time in equity markets?
DAVID BOOTH (00:29:41): Well, the quick answer to that is stay calm — that’s why we call it that; it’s the name of the book. So let me give you an example of the fundamental problem we have with helping people stay invested. Let’s say bad news comes into the market — the pandemic, or a particular stock. And then you look at the stock or the market and you see it’s down 20% or whatever, and you go, holy cow, I gotta get out. There’s bad news and the market and things are dropping — that is human nature. What we’d like to have people think is: look, okay, the pandemic — bad news — came into the market, and the market’s down 20 or 30%. And people were saying, what are we supposed to do? What do you think is gonna happen? I go, hey, look, I don’t know what’s gonna happen — and anybody that thinks they can predict what’s gonna happen, I’d be a little suspicious about. But here’s what I believe will happen: people aren’t just gonna sit there and take it. Kind of the cornerstone of all of my belief in markets and how they work is human ingenuity. That’s what ends up bailing us out. When bad things happen, you don’t just sit there and take it in life — you figure out how to get back on track. And I go, so here we have the pandemic that’s hit — that’s a big smash in the mouth to these firms. They’re not just gonna sit there and take it. They’ll figure out how to get back on track. They’ll try something new and different, and along the way there’ll be winners and losers, and I dunno who the winners will be and the losers. But what I do believe is that effort, that human ingenuity, will likely get us back on track faster than most people think. Which is what happened.
BARRY RITHOLTZ (00:31:38): We saw that during the financial crisis. The pandemic was less than a quarter — down 34% — and from that end of the first quarter in 2020, the S&P was up 69% for the rest of the year.
DAVID BOOTH (00:31:52): Unbelievable. So that’s what we’re getting at. I mean, what was going on — and this is what I get back to: what do you tell people to get through the tough times? Go back to first principles. Okay, we have the pandemic, and there were all kinds of forecasts, but the consensus, I remember at the time, was it’s likely to be a two- or three-year kind of phenomenon. And so the market’s down about 20 or 30%. That seems about right to me. I mean, I don’t know.
BARRY RITHOLTZ (00:32:22): So in other words, it’s already in the price, and trying to act in response to something everybody knows seems like a waste of time.
DAVID BOOTH (00:32:29): Yeah. I learned that really in the late nineties. I was on an investment committee — I used to sit on investment committees; I don’t anymore, other than our own. And the chairman of that investment committee went around the world. This was 1998 — I dunno if you remember —
BARRY RITHOLTZ (00:32:47): Sure — Long-Term Capital Management. I was on a trading desk. I remember that vividly.
DAVID BOOTH (00:32:51): Right. And you had the Russian default, you had the Asian contagion. He goes around the world — the chairman of the committee — and eventually talks about all the problems around the world, and he concludes: so why should we invest in stocks at all? And I said, well, you know, I think you’ve characterized what was going on in these different countries. Okay. But I think all you’ve done is explain why the market’s down 35%. And he goes, ah — and we stayed invested, and of course we were amply rewarded. So if people could just go through first principles — and by that I mean: bad news comes into the market, they look and they say, aha, the stock is down, now I want to get out ’cause I’m stressed. If we can get them to change their opinion and say, look, the market’s down — I mean, the price is down quite a bit — and that’s probably about right, given the bad news that we have, then: therefore, I need to stay invested. I was thinking the other day, if I come out with a second book, maybe I’ll call it Stay Invested. So we’d have Stay Calm and Stay Invested.
BARRY RITHOLTZ (00:33:57): I think your second book should be named What Would Gene Fama Say?
DAVID BOOTH (00:34:01): There you go.
BARRY RITHOLTZ (00:34:02): If the market’s down 30%, what would Fama say? He’d say, it’s in the price. And just sit there and relax and stay calm.
DAVID BOOTH (00:34:09): And that’s the science, you know.
BARRY RITHOLTZ (00:34:11): That’s really interesting. So you mentioned some forecasts and predictions. Another aspect of the book is: plan, don’t predict. You can’t foresee the future, so making decisions based on predictions — you’re essentially engaging in wishful thinking.
DAVID BOOTH (00:34:30): Well, that’s right. I mean, you need to have a plan for going forward in life and investing, but don’t waste the time on trying to predict the unpredictable. Markets are unpredictable — that’s why the pros can’t beat the market, ’cause markets are unpredictable. And yet over the long haul — if you go back, we haven’t talked about the history, but a hundred years of returns that covers the Great Depression, World War II, the Korean War, high inflation, the Great Financial Crisis, the pandemic — through all of that, 10% a year. I think a lot of what I do now, particularly talking to students, is talk about the miracle of the stock and bond markets. These public markets are truly miracles.
BARRY RITHOLTZ (00:35:19): Really, really fascinating. Here’s another thesis that I think is really very, very insightful: control what you can, manage what you can’t. You can’t control crashes, recessions, interest rates, or any of that century of terrible events — but you can manage yourself, your allocation, your ongoing saving. Discuss that a little bit.
DAVID BOOTH (00:35:44): Well, that’s right. In terms of dealing with it — it’s all about managing uncertainty. So control what you can, and manage what you can’t — manage the uncertain part as best you can. Hey, you can’t eliminate it, but you can manage it.
BARRY RITHOLTZ (00:35:59): And by managing it, you’re talking about having a financial plan and sticking to it, continuing to dollar-cost average into it. Like, there are things within your control — that’s what you should be managing. And the things outside of your control, just accept. You can’t control what the Fed does, or what’s happening in the Straits, or who moves.
DAVID BOOTH (00:36:20): Yeah. A lot of people, they make portfolio decisions based on their forecast of what the market’s gonna do. That’s a waste of time. You wanna pay attention to what’s going on, because over your lifetime there are gonna be situations when you need to change your investment policy around — but it’s not based on what’s going on in the market. You need to change — you know, you get a new job, you wanna retire, you have a family. All these things can cause you to invest differently. But at every point, you want to have a long-term plan in place and manage to that. So you can’t control the stock market. You can control how much risk you take, basically. There are two basic decisions as you go down the path. First is the split: how much do you have in stocks at all, versus relatively riskless assets like a money market fund or a bond. So you get that right. And then the second part is, to the extent you’re investing in stocks, buy the whole market. That makes you as good as the insiders — people that think of themselves as outsiders. That’s another miracle of markets: right now you have it, unlike my parents, who never had that available to ’em. Now everybody has access. The market is good for everyone.
BARRY RITHOLTZ (00:37:40): So let’s talk a little bit about financial media, which you write extensively about in the book. Another quote of yours: “Modern financial media is designed to capture your attention, presenting commentary, stories and expert forecasts that are nothing more than distracting noise.”
DAVID BOOTH (00:38:00): Yeah, that’s right. I mean, today, undoubtedly, we have a lot more data thrown at us than ever before. I don’t know that we have a lot more meaningful information, but we have a lot more data, that’s for sure. And so it’s important these days for people to think critically — always go back to first principles. This year in particular, there’s been a lot of anxiety. We have, you know, some wars, we have all kinds of things —
BARRY RITHOLTZ (00:38:28): Tariffs.
DAVID BOOTH (00:38:30): Any number of things you could be anxious about. But I tell people, look — do you think you have more anxiety today, or people have more anxiety today, than during the Great Depression, or during, say, World War II, when it looked like we were losing at first? Those were real, serious anxieties. So I’m not making light of the anxiety, but what the hundred years of data shows us is the market does a really good job of pricing all that uncertainty and the risks.
BARRY RITHOLTZ (00:38:59): So another quote in the same section: “In investing, success often comes not from doing more, but from tuning out more.” So I have to share this with you, ’cause every time I write “tune out the noise,” I get a ton of pushback. Hey, you can’t just ignore all this. You can’t tune it out. It’s really difficult, and just telling people to tune out the noise is a waste of time. What’s your argument back?
DAVID BOOTH (00:39:29): Well, first, I’m glad to see you get your share of that — just like I do. I go: basically, what we’ve outlined is you want to have sensible portfolios — on the equity side, buy the whole market. And the market does a great job of pricing. So all the anxieties that you can express — and there are plenty of things to be concerned about; I’m not making light of ’em at all — that’s why the prices are doing whatever it is they’re doing. And so, unless you’re faster than the market, unless you think you’re smarter than the market, you just have to assume that whatever it is you’re concerned about, it’s already been priced in. You’re too late. By the time you get a certain piece of information, the market’s already reflected it.
BARRY RITHOLTZ (00:40:22): It’s already in the price.
DAVID BOOTH (00:40:24): It’s already in the price. You’re too late.
BARRY RITHOLTZ (00:40:26): So this quote might be one of the most profound things I read in the book — you read it and you’re like, wow, that’s really insightful; at least that was my response: “This isn’t a book about how to invest. It’s a book about how to think about investing. It’s not about picking stocks; it’s about taking stock of what really matters.” Ooh. Right? I mean —
DAVID BOOTH (00:40:52): That’s an example of — you go back and reread it, and I’m like, I wrote that? That’s really, really good. That’s not bad.
BARRY RITHOLTZ (00:40:58): No, that’s damn fine. And it’s because you are implying, hey, this is about securing your family’s future — but it’s not just about money, it’s about all the things that really matter.
DAVID BOOTH (00:41:12): Well, yeah. We have a segment in there about what true worth is about, rather than true wealth. My parents I describe as being wealthy — they just didn’t have much money. So you want to focus on what’s really important to you.
BARRY RITHOLTZ (00:41:33): “The quiet dividend of patient compounding, in both life and investing.”
DAVID BOOTH (00:41:38): Yeah. I mean, one of the first things you’ll learn about in finance is the magic of compounding. If you get that 10% return, it means your portfolio doubles every seven years. And you double it six times if you have a 42-year horizon — that’s six seven-year periods. And life is the same way. You are the result of the effects of the compounding of decisions that you’ve made in life all the way through. And maybe that’s where wisdom comes from — the compounding of the effects of decisions.
BARRY RITHOLTZ (00:42:21): Really, really interesting. I really enjoyed the book — Stay Calm: Learning to Embrace Uncertainty in Investing and Life. Coming up, we continue our conversation with David Booth, author of Stay Calm and founder of Dimensional Fund Advisors, talking about philosophy and philanthropy. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.
BARRY RITHOLTZ (00:42:41): I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest today is David Booth. He is founder and chairman of Dimensional Fund Advisors and author of the new book, Stay Calm: Learning to Embrace Uncertainty in Investing and Life. So I wanted to talk a little bit about both your philosophy — and how it developed — and philanthropy. We’ll circle back to philanthropy in a minute, but let’s talk a little bit about Dimensional. You guys didn’t want to participate in ETFs for a long time, ’cause you preferred to offer your products through advisors to investing customers. What was the idea of working through the advisor side of it, as opposed to marketing directly to Main Street?
DAVID BOOTH (00:43:42): Well, first off, in any business, the marketing is a big component. Now, you have to understand, we’re starting outta my brownstone — in my apartment. It wasn’t like we had a big marketing machine, and we didn’t know anything about selling to the retail public. We did know institutional investors, and so our first clients were large — typically pension funds, insurance companies, sovereign wealth funds. That was the first eight years or so; that was who we talked to. And then one day Dan Wheeler came along. He was a financial advisor in Sacramento —
BARRY RITHOLTZ (00:44:29): In California, right. I know the name.
DAVID BOOTH (00:44:32): And he said, I’d like to have access to your funds. Now, at that time it was kind of unusual for a firm like ours to get big institutions to invest in a mutual fund, but we had created a mutual fund, and because they were institutional clients, our fees were very low — institutionally priced. And so it made it ideal for a fee-only financial advisor — a fee-only advisor being one where we don’t pay them any money and they don’t pay us. I mean, it’s strictly arm’s length.
BARRY RITHOLTZ (00:45:10): What year was that, with Wheeler?
DAVID BOOTH (00:45:12): About 1989.
BARRY RITHOLTZ (00:45:15): So that was long before advisors had taken over from stockbrokers. The fiduciary side of the business was still relatively tiny.
DAVID BOOTH (00:45:27): It was tiny. But these were highly energized financial advisors. I mean, typically the advisor would have come from a wirehouse and felt really dirty about themselves — and I’m just repeating what they told me.
BARRY RITHOLTZ (00:45:40): Oh no, I’ve heard it a million times.
DAVID BOOTH (00:45:42): And to see this approach, which is based on science — you have all the data you could ever want backing up what we do, and you could come up with a sensible investment approach that undoubtedly would work over the long haul —
BARRY RITHOLTZ (00:46:00): It feels good. I had someone leave a wirehouse to become an advisor, and I asked them why — this is, I don’t know, the early two thousands. And I’ll never forget the line I was told: they’re called brokers because they make their clients broker. And I’m like, wow — talk about feeling like, I gotta get out of this side of the street.
DAVID BOOTH (00:46:22): Yeah. It doesn’t have to be that way. But to observe — the ability to beat the market is such a narrow advantage that it takes an incredible firm. I mean, we’re a professional manager, and we can do things that a retail client can’t do — and it has nothing to do with picking stocks, let’s keep in mind, but dealing through market mechanisms: the way you trade, securities lending, so on and so forth. There are things we can do, but the margins are very, very slim. The idea that somebody way down the food chain — a broker at a retail firm — would have some of that magic is hard to accept.
BARRY RITHOLTZ (00:47:12): So when you guys began working with advisors, it wasn’t to design portfolios. The advisor was there essentially to keep the client from abandoning their portfolio and getting in the way of compounding.
DAVID BOOTH (00:47:26): Yeah, absolutely. One of our advisors said it right. He said, you know, I don’t have clients with investment problems, I’ve got investments with client problems.
BARRY RITHOLTZ (00:47:38): That’s a great line.
DAVID BOOTH (00:47:39): But the difference between the two is education. And we’ve always sold through education — we bring people in for seminars and stuff. And the book — I mean, that’s why you would do the book — is to help people better understand how markets work, so they will be more confident that they can have a good investment experience.
BARRY RITHOLTZ (00:48:00): You guys have done a good job on the education side. I’m kind of curious if that’s the reason why you stayed out of ETFs for so long. And for people who are trying to put this in context: DFA launched in 1981, in 2020 was your first ETF, and today you are the largest active ETF issuer in the country. So why leave all that money on the table for 40 years?
DAVID BOOTH (00:48:30): Well, I don’t know — must have been a pandemic, you know, something. Anyway — no, it’s because early on, our advisors said they didn’t need the ETF. The beauty of a regular mutual fund is you go in at net asset value at the end of the day. That’s about as clean as you can come up with. If you buy an ETF, you’re buying it in the open market, and for some people that’s a little scary.
BARRY RITHOLTZ (00:48:58): Whatever the open market cost might be, the offset of the tax advantage has to wildly outweigh it. In a non-qualified account, ETFs are vastly superior to a mutual fund most of the time, for that tax reason.
DAVID BOOTH (00:49:14): Well, to a conventional mutual fund, I agree with you. But we’ve been able to use —
BARRY RITHOLTZ (00:49:19): Use a dual class.
DAVID BOOTH (00:49:20): Yeah. We’ve been able to eliminate a lot of the tax advantage of ETFs.
BARRY RITHOLTZ (00:49:28): By the way, you and Vanguard seem to be the leaders in that space, for having an ETF and a mutual fund essentially track the same holdings.
DAVID BOOTH (00:49:39): And now, coming out this summer and into the fall, we are innovating even more. Right now, we have mutual funds and ETFs that do the same thing — two pools of money doing the same thing. The SEC has given us approval to merge those two, so it’ll just be one pool of assets with two ways of accessing it.
BARRY RITHOLTZ (00:50:04): Two different wrappers, same pool of money.
DAVID BOOTH (00:50:06): Same pool of money. So that will take away the argument — you don’t have to worry about it anymore.
BARRY RITHOLTZ (00:50:14): That’s really good. Isn’t that cool?
DAVID BOOTH (00:50:17): That actually speaks to how science is developing. It’s not like we sit on our hands — we’re continually trying to work through things and become more efficient.
BARRY RITHOLTZ (00:50:29): So let’s talk about another philosophical belief from you guys that I’m fascinated by. People have had a hard time wrapping their heads around: is DFA an indexer? Are they an alpha chaser? And the way I kind of explained it to myself was: no — when you look at traditional indexers, they’re just using one factor of the many Fama-French factors, and what Dimensional has said is, hey, we’re going to use three, four, five factors. So we are indexers, plus the next four factors on the list. Is that a fair philosophical breakdown?
DAVID BOOTH (00:51:10): Yeah, that’s part of what we do — exactly that. And there are some people that don’t want to have a bias towards value or small cap, and for those we have kind of plain vanilla funds too, that aren’t biased. But in both cases, it’s about execution. We talked about how an index fund has to trade in a bizarre sort of way — and we don’t do that. We apply that thinking to all the funds. So that, here again, what we’re trying to do is apply the science, and by the way we structure portfolios, we think we can do better than index providers. And then secondarily, the way we trade, relative to the way index funds trade — that’s true in everything we do. But then, some clients like to have a small cap bias, some don’t. It’s their money — we try to come up with whatever they think is sensible.
BARRY RITHOLTZ (00:52:20): So let’s talk a little bit about philanthropy, ’cause I know part of the book discusses legacy, and you’ve been very involved philanthropically. A decade ago you signed the Giving Pledge, and — I go back two decades — right around the time of the financial crisis, you made a gift in ’08 to the University of Chicago’s business school, which I think was the largest gift ever in the country, or to Chicago, at that time: $300 million. And now it’s the Chicago Booth School of Business. Tell us a little bit about what motivated a gift of that size to that recipient, and what are your thoughts 20 years later?
DAVID BOOTH (00:53:04): Well, okay, first lemme just say it was kind of funny. The announcement for that was made in November of 2008 — like, the week after Obama got elected for the first time. And so there was a big announcement at the school — they said, big announcement coming tonight, free food, come on in — and they thought it had something to do with Obama. He’s a Chicago guy. So that’s when they announced that the school’s name was changing.
BARRY RITHOLTZ (00:53:35): Which, by the way, wasn’t a requirement of your gift. You argued against it.
DAVID BOOTH (00:53:40): Well, I didn’t argue against the Obama part.
BARRY RITHOLTZ (00:53:42): I heard through several people that you pushed back initially.
DAVID BOOTH (00:53:46): Well, I pushed back a little bit, but not a lot. What happened was, I approached the dean of the business school and said, you know, it’s time for payback here — for what the university has done for me, and the faculty. And not only training me in school, but then following up over the years — over the now decades, 45 years. You know, we’ve had five Nobel laureates work very closely with us; all of ’em have been significant directors of our mutual funds or the company, Fama being a founder as well. It’s time for me to pay back, and it’s gotta be a big chunk of what I have. So this is what I’m willing to do. And the dean looks at it and goes, you know, we were thinking about naming the school, and we weren’t asking for nearly this much — we’ll name the school after you. I go, okay, well, whatever. But it was about me wanting to feel good about me.
BARRY RITHOLTZ (00:54:46): Well, you feel a sense of obligation to the University of Chicago ’cause of everything they gave you. Undergraduate and pre-PhD, MBA — you were at Kansas, and you gave them a similar number last year: $300 million to the University of Kansas athletics program. Why focus on sports there? What’s so significant about Kansas athletics? ‘Cause, by the way, as a school, they’ve been doing pretty good.
DAVID BOOTH (00:55:18): Oh yeah, yeah.
BARRY RITHOLTZ (00:55:19): Athletics-wise.
DAVID BOOTH (00:55:20): Yeah. Well, first off, Lawrence, Kansas, where the University of Kansas is, is my hometown. I went to Lawrence High School and then the University of Kansas. So, with all the relatives, it’s in my blood. And for a big state school like that, what’s really important is to have a great, competitive athletic program. I mean, I know the arguments — some people go, you know, they’re not so sure about that —
BARRY RITHOLTZ (00:55:51): It doesn’t hurt their marketing, their ability to recruit professors, students. It makes the town better. I mean, it just multiplies across everything, regardless of how you feel about big football in college.
DAVID BOOTH (00:56:06): Right. But I happen to love it, and I particularly love college basketball. Kansas has always been really good at basketball, and it’s getting better in football. And then with NIL — a little dollop of NIL coming down the pike —
BARRY RITHOLTZ (00:56:20): Name, image, likeness. Get some money to the students.
DAVID BOOTH (00:56:24): To the students. So it puts great financial pressure on the schools, and it’s difficult for a state school to have a big budget for athletics when their professors are making what they’re making. So it’s important for private money — for alums and whatever — to step up in order to help them be successful.
BARRY RITHOLTZ (00:56:53): And I’m gonna assume that this isn’t the end of your academic gifts — you’re gonna be doing other stuff in the future, and obviously the Giving Pledge is a part of that. But I have to ask about a purchase you made in 2010, which is: you bought Naismith’s original document of, essentially, here are the rules of basketball — this is where basketball was invented. And I think you paid over $4 million for it, and then you gave it to the University of Kansas athletic department. Explain — tell us about that.
DAVID BOOTH (00:57:30): Well, it was really kind of an interesting auction. James Naismith invented basketball in 1891 — if you think about it —
BARRY RITHOLTZ (00:57:40): The peach crate.
DAVID BOOTH (00:57:41): Yeah, the whole thing. It’s the only major sport that I can think of where we know who invented it. It was a class assignment for him in school, at the YMCA in Springfield, Massachusetts. So the rules stayed in the family, and as things happen over time, they just decided that they wanted to sell it. So I decided — here again, basketball is so important; if you live in Lawrence, Kansas, you realize that the rules of basketball, those two typewritten pages, need to be in Lawrence, Kansas. ‘Cause Naismith, after he invented the game, goes to teach at Kansas for 40 years; he’s buried in Lawrence. So I realized that —
BARRY RITHOLTZ (00:58:31): Perfect match.
DAVID BOOTH (00:58:32): Match — had to buy it. So it started off, they thought it would go for about $2 million, but along the way — I was bidding over the phone, and there was somebody else bidding over the phone, and it kept ratcheting up, and I ended up paying about four and a half million. The person on the other end of the phone was David Rubenstein.
BARRY RITHOLTZ (00:58:52): Get out! Oh, that’s hilarious.
DAVID BOOTH (00:58:53): Your Bloomberg —
BARRY RITHOLTZ (00:58:55): Co-host — fellow host. That’s amazing. Did you explain eventually to him why you bought it and why it went to Kansas?
DAVID BOOTH (00:59:03): No — once I paid for it, it was announced who bought it. So he sent me an email the next day saying, hey, I think I cost you some money. Which is funny. So we still have a good chuckle about that.
BARRY RITHOLTZ (00:59:18): So, the last piece of philanthropy I have to ask about before we get to our favorite questions: you’re known as an avid art collector. If you go down — I don’t know what river that is in Texas, but I’ve been on that boat — you can see some of your sculptures right from the river, if you’re in a boat. You’ve endowed a conservation center at the Museum of Modern Art, and — as opposed to just donating a sculpture or a painting — you’re essentially helping them preserve their entire collection in perpetuity. Tell us a little bit about that.
DAVID BOOTH (00:59:55): Well, I mean, preserving your patrimony is important for any country, and art is such a big deal, and MoMA is such a great museum —
BARRY RITHOLTZ (01:00:06): Spectacular collection.
DAVID BOOTH (01:00:08): Spectacular.
BARRY RITHOLTZ (01:00:08): Of which, like, 3% is displayed at any time. It’s an enormous, enormous collection.
DAVID BOOTH (01:00:18): It’s complicated. So I’ve sat on the board there for about 10 years now, and it’s just really been tremendously exciting. And then I endowed the conservation lab, because conservation is easy to overlook. But taking care of, particularly, modern art — which could be some fiberglass or something — who knows what kind of stuff goes into it —
BARRY RITHOLTZ (01:00:41): To say nothing about how paint decays, how canvas, paper — all that stuff is problematic over time.
DAVID BOOTH (01:00:51): In the old days, conservation was probably somebody kind of having a couple sips of alcohol and dabbing some paint on a painting and trying to clean it, or whatever. That’s changed. Now it’s incredibly sophisticated — you take X-rays of the painting or whatnot, you study the chemistry of it. So I’ve headed up that conservation committee for quite a while now. It’s very exciting to see what they’ve done to maintain the art.
BARRY RITHOLTZ (01:01:21): Huh, really interesting. All right — I only have you for a couple more minutes, and you and I can continue this conversation in Southern California, in Huntington Beach, in a few weeks. For now, let’s jump to our favorite questions that we ask all of our guests, starting with: tell us about the mentors who helped shape your career. And I have a pretty good idea who they are.
DAVID BOOTH (01:01:44): Well, no, that’s right. Let’s just start with the Nobel laureates: Merton Miller and Gene Fama, Myron Scholes, Bob Merton and Doug Diamond. Kind of an impressive group of characters.
BARRY RITHOLTZ (01:01:56): That’s a Murderers’ Row right there.
DAVID BOOTH (01:01:58): Murderers’ Row, yeah. Then you had Mac McQuown, who really started indexing —
BARRY RITHOLTZ (01:02:06): And he really was the initial — was he the first check into DFA?
DAVID BOOTH (01:02:11): No, he was a founder. In fact, more importantly — besides investing in the funds, he helped us raise the money, the risk capital, for the firm. And then I always have to throw in my parents. I mean, it ties into what True Wealth was about. They never had much money, but they were wealthy — they had figured out what life was about.
BARRY RITHOLTZ (01:02:40): Huh — really, really interesting. Let’s talk about books, in addition to yours. What are some of your favorites? What are you reading currently?
DAVID BOOTH (01:02:48): Well, I just finished 1929, Andrew Ross Sorkin’s new book. That’s very, very interesting.
BARRY RITHOLTZ (01:02:54): That is on my nightstand — it’s up in a few books in my queue.
DAVID BOOTH (01:02:59): Then, in the last couple years, the book I’ve really liked a lot was Paris 1919 by Margaret MacMillan. And she takes us through what became known as the Treaty of Paris. When the Armistice was signed at the end of World War I — that’s just when all kinds of crazy things happened, because the Ottoman Empire collapsed, the Russian Empire collapsed, the Austro-Hungarian Empire collapsed. So you had to create new countries all over the place — all through Central Europe and the Middle East. It took about six months to develop the Treaty of Paris. The first five or so, they didn’t do much, and then all of a sudden, the last month, they just got together. I don’t know if they could have done much better, but it was pretty chaotic.
BARRY RITHOLTZ (01:03:51): Really interesting. I’m gonna add that to my list. Tell us — are you streaming anything? What do you do to relax? Podcasts, movies — what entertains you?
DAVID BOOTH (01:04:02): Well, I mean, your podcast. But — no, we have a new season of Ted Lasso, which I’m really all over.
BARRY RITHOLTZ (01:04:09): My wife and I are waiting for there to be more than three or four in the queue. It’s just too frustrating to watch one a week.
DAVID BOOTH (01:04:16): By the way, he’s a KU alum as well.
BARRY RITHOLTZ (01:04:18): Yes, yes — I knew that.
DAVID BOOTH (01:04:20): And we have any number of series. You know, what happened was, when the pandemic hit and we couldn’t go out much, I watched more TV in that two-year period than I ever watched before — or since.
BARRY RITHOLTZ (01:04:34): Same — absolutely the same. I was mentioning the other day that 6:30 is the new 7:30. It used to be, if you tried to make a dinner reservation around 7 or 7:30, it was the toughest reservation to get. And now it seems the hard reservation to get is 6 or 6:30. And it’s not just that we’re aging and heading towards the early bird special. I think people want to go to dinner and then come home and watch whatever it is — Ted Lasso or Lioness or Yellowstone, whatever their thing is. It’s so funny you say that, but the pandemic was absolutely the most TV I’ve watched in my life.
DAVID BOOTH (01:05:15): Yeah, right.
BARRY RITHOLTZ (01:05:16): Our final two questions. I think this book offers a lot of interesting advice, but I want to ask you specifically: for a recent college grad who is interested in a career in either investing or wealth management or anything along those lines, what sort of advice would you give them about building a career?
DAVID BOOTH (01:05:39): Well, first off, I don’t give advice — but here are some thoughts. First are the thoughts that probably everybody will tell you: figure out where you have some skill — some comparative advantage or competitive advantage — and what you are passionate about. So marry those two things, passion and skill, and work really hard. Now, the part that I don’t think is emphasized enough is: by the time you get outta school, you’ve developed a set of values — your personal set of values. Pay attention to that. So find something you’re passionate about, that you have a skill in, that kind of maps into your values — and pay attention to those values, and don’t deviate from them in pursuit of just a short-term job. I mean, when you get outta school — like when I got outta school, most people, you’re just lucky to find any good job. But over time, you kind of iterate towards what you think is really valuable.
BARRY RITHOLTZ (01:06:57): Good advice — or good insight; I know you don’t like to call it advice. Our final question: what do you know about the world of markets and investing today that might’ve been useful back in 1981, when you were first launching Dimensional Funds?
DAVID BOOTH (01:07:16): Well, I think one of the big things there is that I didn’t realize how difficult it would be to persuade people about this new way of thinking about investing. I mean, because I’m sitting there — of course, I’m totally wound up with all the University of Chicago stuff. I have all the science, the data and so forth. I go, once you explain that to people, they’ll flock to it. You know, I’ve been doing this for 55 years. People don’t flock to new ideas just based on new research or new ideas. You have to soak the ground down around ’em, let ’em sink into it. So I guess if I’d known how hard it was, I don’t know if I would’ve pursued it. But I think we’re getting close. So now I’m at the phase where it’s exciting to explain all this stuff to people, ’cause they’re starting to respond to it, and I really find it great.
BARRY RITHOLTZ (01:08:10): You’re getting close — keep at it. Eventually you’ll convince a few people. David, thank you for being so generous with your time. This has been absolutely delightful. We have been speaking with David Booth. He is the founder and chairman of Dimensional Funds and the author of Stay Calm: Learning to Embrace Uncertainty in Investing and Life. I would be remiss if I didn’t thank the crack team that helps put this conversation together each week: Alexis Noriega is my video producer, Sean Russo is my researcher, Anna Luke is my podcast producer. And before I say so long, I just want to thank Alexis for being a fantastic video producer and helping to put this podcast into the world of YouTube and videos. She’s departing to take a full-time gig — that’s a big promotion for her, and we wish her the best of luck going forward. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.
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