The Science Behind The Markets: Masters in Business with David Booth

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2:36 Podcasts radio News. This week on the podcast, What can I say? Legendary investor and founder of Dimensional Funds. David Booth talks about

2:48 His entire career, his philosophy, philanthropy, how he helped. build DFA to a trillion dollar fund. And why people Refuse to just Manage what they can and stay calm in the face uh of volatility and market events. I thought the conversation and the book stay calm was fascinating, and I think you will also.

3:14 Mm. Booth, welcome back to Bloomberg. Well thanks for having me. Always a pleasure. Uh I was gonna say the same. It's always a pleasure. I know your background, but I un I'm gonna assume a lot of listeners may not be familiar with it. So I wanna start with Go all the way back to your um college and and grad school education

3:43 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. Well that it r it really was. I mean in the sense that Like a lot of kids, when you're in college or Even high school.

4:06 You think Poi. I'd like to be a professor,'cause that's all you know, right? Right. And it's a great job. You're on a campus, it's looks like fun.

4:14 Yeah, back in back in those days it it was a Um Yeah, it was a It was it was a good uh It was a good professionally.

4:22 Um mean there is a thrill of teaching kids, seeing the light go on. Kind of a Same thing we have in business. When you have a client finally.

4:31 The uh when they get it, you know it's Very cool. So so at Chicago you pivot from a PHD to an MBA And eventually you become some young professor was not that much older than you Gene Fama's uh assistant, researcher, TA

4:48 Tell us a little bit about what led to that pivot. Well, I mean the backdrop is Yeah, in that period of time, the late sixties, early seventies. That's where Uh

4:58 Science really emerged or finance emerged as a science. And has continued to involve Yeah, even today. And by that I mean Um

5:08 For something to be a science, you need Testable hypothesis. Don't worry, I'm not getting too heavy into this. Yeah. The uh

5:17 And before nineteen sixty they just didn't have the data. To test things out. So Um In the early sixties that uh University of Chicago developed this research quality.

5:28 Data base. Crisp. Crisp. It started in nineteen twenty six. So now we have They've updated it, so now we have over a hundred years. W when did Chicago first roll that out?

5:40 Uh about sixty three. While Fama, my mentor and Nobel laureate in twenty thirteen. Yeah. The um

5:48 He was he was in the PhD program. And Chicago the Jim Lorry and Larry Fisher developed this database. And They turn it over chains and look.

5:58 Do some paper. Do something with this data. And so he Head start on everybody, which is And for the next twenty years he was a The most cited.

6:09 you know, academic uh still one of the most cited academics. Maybe the most ever really in academic in in finance. Uh first mover advantage for sure. So Around the time You Finish your PHD.

6:23 Fama's um efficient market hypothesis. That that thesis was starting to gain traction At least in academia, if not Yeah. Tell us a little bit about what was so attractive about EMH. Well it was it it was incredibly exciting.

6:41 Make a slight correction. I actually didn't get a PhD. I got a VM you work on your PhD and then got an MBA. Yeah. And eventually I decided the world will be better served. If Jean Fama did research,

6:54 And I try to apply the ideas rather than the other way around. Uh so uh Um I walked into his office one day and said, Look at Thank I'd like to leave the program.

7:04 So he Calls up uh Mac McQuown out at Well it's far going San Francisco. Mac was And charge them.

7:12 Applying qualitative methods for the bank. And one of the areas he worked on was Investing. So he calls up Mac. Mac uh had always wanted one of his students. So he Recommended me and

7:24 Mac and I hit it off and Work for them and so I decided. To leave the program. So the first job did you ever get your MBA, by the way? I got the MBA. On the way out they gave me an MBA. That was nice. Um that was a good investment on their part.

7:38 Um you worked for Mac at Wills Fargo in San Francisco. I didn't realize you were on the West Coast for a while. Yeah, right. I mean th this is the early seventies, so it's still kind of hate Ashbury kind of thing, uh you know, for sure. Um 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. Samsonite, that's right. And um

8:10 Walk us through that. It it was It turns out It was really pivotable. Pivotal in uh

8:18 And kind of the history of Of finance. Uh for Uh Uh a couple of reasons.

8:24 One is And um Doing all this research. uh and and finance. Um

8:31 You know, the fundamental question became You know if you can't How guess the market how you supposed to invest? I mean most people growing up thinking And back in those days everybody thought

8:42 That investing was about trying The next winter stock and Time markets and That sort of thing. And

8:50 Beginning in the mid sixties all of a sudden. With this burst of data. They could examine things like are professional managers that try to out guess the market. Are they worth the cost?

9:01 You know, 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

9:11 Yeah, the the the the professional investors don't seem to be able to beat the market. Okay. And that has a profound implication.

9:19 And uh Fact, um We can get around more of the personal story, uh Grew up in the Great Depression.

9:29 And then uh fought World War Two and So forth. And never had much money and Uh But they never invested in public markets.

9:37 'Cause they thought of themselves as outsiders. And the insiders would make all the money. And just take advantage of them. They never Invest it in

9:47 And they had a little tougher time in retirement than they They probably should have. And to be fair, the history before the postвор two era was They weren't so wrong. They weren't so wrong.

9:59 So now That's the breakthrough. One of the implications of the of the new science is uh That the uh Outsiders can do as well as the

10:07 The insiders. Maybe better. Once fees are considered'cause you can buy market portfolios. Very easily and very inexpensively now.

10:15 And The pros don't seem to be able to beat that. Well, the data on the pros, it doesn't matter if you're looking at Morningstar or Speaver or Dalbar or any of the annual studies. Is in any given year less than half of professionals beat the index and I think that's net of fees.

10:33 Um In fact, yesterday sorry, but it was There was a front page article in Wall Street Journal, right? Uh. Only twenty seven percent last year in the last twelve years. It was a particularly bad year because one sector dominated and if you didn't have exposure to that sector.

10:49 you barely lagged. And the year before the sector didn't dominate. So Y you gotta pick the sector, time it right, and stay invested. So so Mac creates the first index fund. I'm I'm really curious or one of the first. I'm curious. Was there much of a reaction or any pushback from Wall Street or did it just kinda slip by unnoticed?

11:15 No, there's a huge uh pushback. Um It it was stuff they didn't want to hear. I mean they've been claiming for years, Oh yeah, we can be beat the market, we can We can do fifteen or twenty percent regardless of markets. So you have all these claims. Right. It turned out

11:29 No. You know, unfortunately couldn't be backed up by the data. You know, that's uh Very powerful lesson in in in developing arguments. I mean if you have data and the other side doesn't. You know, it's kind of

11:41 Um Unfair fight. So but it gets into uh A lot of issues we'll we'll we'll cover as to Why I'm still out.

11:50 So so let's talk a little bit about that message. Um you and some of your Chicago classmates, uh Rex Sinkfeld is as one. Um and he had worked on an S P five hundred index funds at American National Bank. And then Larry Klotz was also a Chicago uh No, he was just uh we worked together for A A G Becker. Uhhuh. That was also in Chicago in Chicago, but not the university. Yeah, right, right, right. Um and then uh Mac basically helped fund this Hey, we wanna apply everything we learned at Chicago and express.

12:27 the insights of pharma In an investable thesis. There were really two avenues that were being explored simultaneously. We had one group that I worked in. Uh.

12:40 And we used as our primary Outside consultants, Fisher Black and Myron Scholes. More Nobel laureates. In working on our project they developed the Black Shoals option pricing model for which Yeah.

12:55 Well, yeah, Myron got a became a Nobel laureate. Fisher unfortunately had passed away, so he didn't get he didn't get it. But uh The idea of our group was can we Okay, we accept

13:05 uh Michael Jensen and the work of others. Says that pros can't seem to beat the market. So what are you supposed to do? So By n by then we'd developed, you know, quite a bit of of the science.

13:16 Uh and um And one idea. Uh based on the models of the time. Sounds silly now, but As well. If you have a portfolio that has a higher beta than the market.

13:28 It should outperform. Okay. But does that mean you're just taking on more risk? Yeah, but uh you know. I'm risking So

13:37 That that's one way to beat the market is take more risk. Mm-hmm. But still being diversified. So Um That was the Samsonite account. They figured out a way of Creating a higher beta portfolio.

13:50 equal positions in in all the stocks they bought. Equal dollar amounts. Um Hannah.

13:58 Yeah, a a portfolio like that. Should have a Somewhere beta. Let me just Refresh people's memory.

14:05 Uh uh the market has a beta of one, so if you fluctuate more than the market. Yeah, you have a Um than one.

14:12 And And uh fluctuate less than the market. Yeah. Peter's less than one. And so if you have a

14:19 Have a higher beta, you should outperform. That was the thinking. Incredibly naive, and then we I mean we were we were kinda geeky back then. So I think I think you guys are still a little geeky. I've learned to uh

14:32 Kind of appreciate that actually. So uh That was that was one of a group. The other group At Wells. Was it the trust department and Mac

14:41 Higher Somebody To uh Head of the Trust investments.

14:46 Um And he w to do an S P five hundred index funding. Okay. So that was the S. Still early seventies or this is decades before BlackRock, years before Vanguard. This is very, very early. Right.

15:02 So that's what they wanted to do. And we go, look, as a scientist you wouldn't do an index fund. They go But I think it was some marketing genius. No you want to S P five hundred index fund. Everybody can understand that.

15:14 You can track the index. And here again. The pros don't seem to be able to beat that that index. So Why not? You can at least can

15:23 Get the index return. So uh Can't get alpha if you're not at least getting beta, right? Yeah, right. So that's Now so those are two different points of it. And the reason I emphasize that is That S P five hundred index fund idea took off.

15:37 Mm-hmm. It changed hand. That group. Left and Now that's the

15:43 cornerstone of BlackRock. It worked its way eventually to Barclays, uh and then BlackRock bought that whole business in What are they, fourteen, fifteen trillion? Yeah, right. Arguing. I mean and they they basically prove the point, hey, it's really hard to beat the market. Yeah. So hats off to them.

16:05 Now keep in mind, so let's go back to the other group, the one that I was working on. That really became Yeah, the basis for dimensional. So um Eventually our group we ended up.

16:16 Irritating the trust department enough they got rid of us. So uh Rex He wasn't. So who was the initial group? Well uh well the uh Rex is part of the initial group of dimensional, sorry. Um And

16:30 We Uh brought in The first two people we talked to were Um

16:38 Gene Fama, my mentor in the research site in Mac McQueen. So by that time it left Wales as well. Then we pull together the the uh the other leading academics we work with, you know, people like

16:50 Martin Miller who's You know, nineteen ninety Nobel laureate. Myron Schul's a Ninety seven. Um Along with Fama.

16:59 So out of all of this, you your first fund that you launch when DFA began in Brooklyn Was a small cap or microcap shot. We were the first people to use small cap as a term. Bringing a Smaller uh And this was based on Pharma's uh some of the initial factors seem to have persistent uh performance attributes. Yeah, that that was uh document about ten years later. So here we are, we're f some ways flying blind.

17:27 We had a We had a compelling argument. Because in nineteen eighty one, if you looked at large institutional investors They weren't holding the stocks of smaller companies in any meaningful way. So if you want to be diversified, you want Large and small.

17:41 Uh not just large. W so was that the pitch to institutions? Yeah. Small cap will diversify off the rest of your against the rest of your holdings. Right. And then and talking to Fama, he said, You know, we had uh And and w so we got our first clients with that. So we often running With a small account fund, we had clients.

18:00 And Fama goes, Well You know, we have a student here that did his PhD dissertation on just what you're looking at, I think. Because uh Ralph Bonds. In Rawford. Yeah.

18:10 Looking breaking down stocks on the New York stock exchange into size quintiles, largest to smallest. Mm-hmm. And the smallest stock smallest quintile. outperformed all the others. By quite a bit over time. So

18:24 Putting my marketing hat on, I think we'll define small to be the smallest quintilist. I'm coming. Comes on New York. Mama didn't raise her.

18:31 Complete idiot here, you know. So uh That was um That was how we got started and There really wasn't A counter argument.

18:40 Because people couldn't say, No, I've got that covered. They knew they didn't have the small cap covered. So what we were able to do is Provide access. Which is it?

18:49 Uh to small companies. And that's really the basis of dimensional. Uh something that's really Uh and About ten years later, Fama along with his colleague Ken French.

19:00 Felt yeah. Uh model. So we When we

19:06 Back when I was at Wales we just had single factor beta. So we had a couple more factors. So Pharma Franch started with three, then it was five, and arguably there are just Hundreds, most of which are tiny. Mm yeah, yeah, most of which are tiny and

19:21 It kinda collapsed to You know, uh five to seven is plenty. Well, three's plenty, I think. Four we have really four Five now. But

19:30 You know, you get your big bang out of the first one. In the market. The beta. The beta. And then second Uh factor say uh

19:38 Um value versus growth. Mm-hmm. That picks up a lot. Not as much as a first. And then the small he's that small. That adds a little Then you can add.

19:49 Pretty soon there's diminishing marginal utility like everything in life. Quality, momentum. As you work your way down, each generates less and less. a 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.

20:06 Here is a a a 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

20:20 Apart from everybody else. It shows you how powerful an idea was, because here we are Uh starting a firm we have no track record. I'm the first portfolio manager. I'd never Manage stocks.

20:35 I mean butt stock more. Uh And we're operating out of my spare bedroom in in in downtown Brooklyn Heights, you know, so uh Um You figure.

20:46 How can you pull that off? Well you can pull it off if your idea is as profound as the I the ID itself is so profound. And backed up with incredible Ah research. Yeah, that's

20:58 It's hard to refute. So so here's the key question, given how powerful that is Um but at the time fairly novel. What do you think Wall Street just missed about indexing investing?'Cause Clearly there's a financial opportunity whether or not

21:17 your particular fund at the moment Is selling performance and active selection No one else looked at this and said, Hey, there there's a business to be had here. Well back in those days, unfortunately this is changing now, but back in those days

21:32 Um Basically nearly all financial services were distributed through uh commission salesmen. So Wall Street, B C. If you have a commission broker Managing your money.

21:44 You're gonna be trading a lot, I can assure you. You know, and if there's anything that All this research pointed to is you don't want to trade a lot. You know, trading Yeah.

21:55 Uh is a Negative expected outcome. Kinda like uh gambling in Vegas. So um But that's that's the cornerstone of of Wall Street.

22:04 So you go. What do you mean? You're telling me I shouldn't be trading a lot. You're you're ripping my eyes out. I mean this is

22:10 That can't be true. And you're Hey look. All we all I can tell you is we have logic, reason, and empirical evidence on our side. You have No data. All you have are bl is bluster on your side.

22:22 You know. And over the long haul, we're winning. Hard to make somebody understand something when they're Income is depending on them not understanding it. Yeah.

22:37 He's in All you're doing is bluster. And Look, Wall Street firms in those days were very good at shoving product down people's throat I would tell you

22:48 They're still pretty good at it. There m there was developed which is an incredible development. Almost as important as the development of the science. was the development of the fee only financial advisor.

23:03 Which is we started working with in the the late uh nineteen nineteen eighties. We're gonna get to that question. I wanna stay with Fama's insights and your ability to express that in a portfolio Um the fascinating thing about D FA to me is that

23:20 It's not Simple. market cap based indexing. Um It the the approach that you embraced early on was

23:30 How can we express Um, something that's a combination of what indexing would eventually become Uh married to a systematic factor based investing strategy. Right. And the uh by the way.

23:46 Uh early on. Um Even going back to the days at Wells, we have these Two groups. And then the scientists say, No, that you can do better than indexing.

23:56 You know, uh Um And that's Forty five years. Yeah, that's been our message.

24:03 You know, as a scientist you wouldn't index for a lot of reasons. Uh one is Um Um You're putting a constraint on yourself. I want to track an index. Mm-hmm.

24:13 Constraints cost in economic terms. It's costly. And we can get into where the cost is. The other uh part of it is um The silly way that index funds have to

24:23 have to behave in the and um 'Cause of the announcements of additions and deletions and Yeah. Telegraph. Right. Standard and poor's if they add a new stock into their S P five hundred index.

24:36 Today. At tonight's closing price. If you are an S P five hundred index fund manager then you want to buy that stock today at tonight's closing price. Even though you know it's gonna run up in anticipation.

24:51 And Even though you know that you're Every other S P five hundred index fund manager that's out there is also gonna want that stock at Tonight's gone. Um

25:01 So that that's where You know, science kinda probably all sciences are this way. There's a science and there's the art of the science. You know, you You go to medical doctors. Let's say they all study the same textbooks.

25:14 Well some of them just better. At execution. Uh Mm-hmm. And that's what we're talking about here.

25:20 You know, um If you And the simplest of all ideas is if you're trying to buy a stock at the same time everybody else's that's probably not a good trade. You know that's

25:31 The intuition would tell you that and I think our most recent studies shows that The run up was about four percent, you know. When it goes into the index, the index pays Uh about four percent more than And a fair price. And and the flip side is the deletions

25:47 have a tendency to outperform the S P over something like Same thing, people sell in advance by the time it's actually deleted It's appreciably cheaper and maybe that becomes a a value. Let me give you the downside of our approach what we're talking about, which is

26:03 You have to have a certain amount of trust in the manager. Yeah. Because We're not slavy. I mean The indexing

26:11 You know exactly what They track the So that's all they said they would do. And

26:17 Our idea of saying look we We'll use a little flexibility, a little bit of human judgment along the way. Not a lot. But you know. Not Like the old days of

26:26 Wild stock picking. Throwing darts. Throwing darts or whatever. But so we'll leave a little bit of judgment. Hp. Requires You don't have

26:35 Little confidence in our ability to execute. So When we started a lot of people Said, look, how do we know you're You can execute.

26:44 Because When you go out and buy or sell, you're gonna you're gonna be trading against professional investors. They they think they have undiscounted information, if you will. They they have something uh Special uh special knowledge.

26:58 And you don't. Okay, well. Turns out There's a flip side to that. Which is

27:04 If you think you have special insight. If you're an active manager and you you think you know something special. You you also realize the half life of that is Really short minutes probably. Today it's probably millisecond.

27:18 So you wanna if you wanna get rid of a stock, you wanna get rid of it. And so we come along. And we're kind of indifferent. We buy ten thousand stocks, you know any given

27:30 We don't buy all ten thousand of them, we buy it. And we Kind of focus. Um a lot on what's trading easily that day.

27:39 You know, uh Even a small company stock. You know, twenty percent of the time it trades a lot. Uh in other words you can use execution and volatility as a source of better pricing. So that's um

27:53 Uh And that's worked out over forty five years, you know. The first forty five are the toughest I realize, but uh You know, uh, But it still You know, people slap their forehead and it's that's hard to believe that uh

28:06 Yeah. This professional money manager out there trading against you. You It's not that we take advantage of them. We provide liquidity and we get

28:15 our clients get the benefit of uh providing that service. And by providing liquidity it means you're willing to be a buyer at times when many other people are not. We're not gonna pay retail for that stock, but I mean if if you can talk to me, can you do something for me on the street? Take a little little something off. Coming up, we continue our conversation with David Booth. Founder and chairman of Dimensional Funds Advisor talking about his brand new book.

28:43 Stay calm, learning to embrace uncertainty. in investing and life. I'm Barry Bridge, you're listening to Masters in Business. On Bloomberg Radio. Today's show is brought to you by Vanguard.

28:58 Advisors, your clients count on bonds for income and stability. Not. Unwanted surprises. That's why Vanguard builds institutional quality bond funds. They're designed to help portfolios remain steady.

29:12 When markets don't. Whether index or active, Vanguard aims for consistent bond performance. With a low cost edge. Which helps clients earn returns that compound over time. A rigorous approach to risk management holds it all together.

29:29 The goal Keeping income and stability in And unwelcome surprises Out. Because fixed income shouldn't feel like a roller coaster.

29:38 Explore institutional quality bond funds from Vanguard. Learn more at Vanguard.com slash audio That's vanguard dot com slash audio. While investing is subject to risk, Vanguard Marketing Corporation distributor.

29:55 Yeah. If your service lights on, trust the text with the training. That's us. 270 hours with zero complaining, they train under the hood. They train down in the pit. 270 hours means their training's legit. It's the smart choice for smart folk who care for their steed. So trust the instant oil change that starts with Valvine. Valvely, instant oil change. Change wisely. Join us for Bloomberg Powers on September 10th in New York.

30:29 Set against the backdrop of the U.S. Open Tennis Championships, Bloomberg convenes the leader shaping the future of sports business. From athletes and team owners to commissioners and investors. Hear the market moving conversations driving the multi-trillion dollar sports economy. Register now at BloombergLive.com slash PowerPlayersRadio. That's BloombergLive.com slash PowerPlayers Radio. I'm Barry Ritt Haltz, you're listening to Masters in Business on Bloomberg Radio. My extra special guest today is David Booth. He is the founder and chairman. Of Dimensional Funds advisors. His new book is out. Probably by the time you're hearing this, stay calm, learning to embrace uncertainty.

31:14 in investing and life. So 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. Explain that.

31:31 That is a good quote. Every now and then, you know, you write something back. By the way, I I have a dozen fantastic quotes and I'm going to try and click through all of them from you. That's not bad. Yeah, no, it's um And not only um Let me tell about a breakthrough that happened to us about ten years ago. When we started uh

31:57 We realise That's Yeah. There are a lot of parallels between investing And your life experiences. A lot of that has to do with how you deal with uncertainty.

32:08 You know, Um You know, as you grow, you learn how to deal with uncertainty. Um And what you realize is

32:16 Uncertainty is what creates opportunity. So if if there were no uncertainty. You know, you wouldn't have had the ability to Progress. You know, uh

32:24 So It's not about eliminating uncertainty. It's about managing uncertainty. And that's um That's true in life.

32:33 And the reason I bring that up is'cause that's also true in investing. Um If there are no uncertainty Uh in other words if All investing was risless.

32:42 Uh then Um I got some ten year treasuries at three and a half percent that you can you can hold and Keep barely keep up with inflation. Well if there are no uncertainty investing, every investment would have the same return. Whatever that is.

32:58 Um So it's in investing as well, then it's investing that create sorry. It's uncertainty that creates opportunity. And uh Once people start to realize that we go

33:11 So let's let's go back. How d how do you deal with uncertainty, you know? Uh Well Um First off you realise

33:20 Totally predictable. Um I mean Think back twenty years ago, could you Could you have predicted where you are today or

33:27 Where you'll be twenty years from now. Nobody in December twenty nineteen was predicting a pandemic the next year in a market that would scream higher. But it's it's the future is inherently unknowable. So embrace that uncertainty though. So that's what Um that's what gives us the opportunity in life and investing. So so what do you say to people who are investors

33:57 And hey, incer uncertainty creates opportunity. H how does uh the average mom and pop investor how are they supposed to live through The regular fifteen, twenty, twenty five percent drawdowns. We see all the time in equity markets.

34:13 Well the quick answer to that is stay calm. That's why we call it. Yeah, so uh Um Let me uh kind of

34:24 give you a kind of an example of uh of the of the fundamental problem we have with helping people. Come on. Uh stay invested. Uh Let's say bad news comes into the market.

34:35 The pandemic. Ha. Yeah, or a particular particular stock. Then you look at the stock or the market and you see It's down.

34:45 Twenty twenty twenty percent or whatever. Uh, you go holy cow, I gotta get out. You know, as there's bad news in the market Yeah, things dropping. That is

34:55 Human nature. Logic. What we'd like to have people think is look Okay. pandemic, bad news came into the market.

35:04 The market's down twenty or thirty percent. And people were saying, What are we supposed to do? What are we supposed to do? What what do you think is gonna happen? I go, hey look. I don't know what's gonna happen. And anyway

35:15 that thinks they can predict what's gonna happen. I'd be a little Uh kind of suspicious about Um But here's what I believe will happen. Um

35:23 People aren't just gonna sit there and take it. Yeah, yeah. My belief in markets and how they work.

35:31 His um Um Human ingenuity. That's what ends up bailing us out. Yeah, when

35:37 Bad things happening, you don't just sit there and take it in life. You figure out how to get back on track. Anico. So here we have the pandemic. It's

35:46 That's a big smash in the mouth to these firms. I'm not just gonna sit there and take it. They'll figure out to get back on track. They'll try something new and different and Along the way there'll be winners and losers and I don't know who the winners will be and the losers But um

36:00 Uh What I do believe is we're likely That effort, that hum human ingenuity Will get us back on track. Faster than most people think.

36:08 Which is what happened. We saw that during the financial crisis. We s the pandemic was less than a quarter down thirty four percent. And from that End of the first quarter in twenty twenty.

36:21 The S P was up sixty nine percent for the rest of the year. Unbelievable. So that's what we're getting at. I mean so 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.

36:34 We have the pandemic. Um Are there all kinds of forecasts and But the consensus was it. I remember at the time.

36:42 Slightly without a two or three year Yeah, kinda phenomenon. Uh And so market's down about twenty or thirty percent. That that seems about right. I mean, I don't know. I mean uh

36:53 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. Yeah, I learned that uh Really in um I remember in the late nineties I was on an investment committee. I I used to sit on investment committees.

37:09 I don't anymore. Other than our own. Um And the chairman of that investment committee went around the world, this was nineteen ninety eight. I don't know if you remember, but you know long term capital management. I was on a trading desk. I remember that vividly.

37:24 You have the Russian default, you have Asia contagion. He goes around the world the chairman of the As a committee. Says And eventually Talks about all the problems around the world.

37:33 So why should we invest in stocks at all? Yeah. And I said, Uh well you know I think he characterized what was going on in these different countries, okay.

37:44 But I think all you've done is explain Why the market's down thirty five percent. You know what? Any good. And we stayed invested in the course uh you know

37:53 We were amply rewarded. So if people could Yeah. Just go through first principles and by that I mean Bad news comes into the market.

38:02 They look and they say, Aha, the stock is down. Now I want to get out'cause I'm stressed. If they if we can Get them to change their opinion and say, Look The market's down.

38:12 I mean the price is down quite a bit. That's probably About right. Given

38:17 The bad news that we have. If they could Therefore I need to stay invested. If I

38:23 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 Invest. I think your your second book should be named What Would Gene Fama Say. Yeah, right. If if market's down thirty percent, what would Fama say? He'd say it's in the price. Yeah, right. And just sit there and relax. And stay calm. That's the science. So you mentioned some forecasts and predictions. Another aspect of the book is

38:51 Plan, don't predict. You can't foresee the future. So making decisions based on predictions is Y you're you're essentially engaging in wishful thinking. Well that's right. I mean it's

39:03 You need to have a plan for going forward in life and investing. Um But don't waste time on trying to predict the unpredictable. Markets are in Uh unpredictable.

39:13 The pros can't beat the market. And yet over the long haul It's been able.

39:21 If you go back. We we haven't talked about the the history, but A hundred years. Of returns. That covers the Great Depression, World War Two, you know.

39:31 Korean War. High inflation. Great financial crisis, pandemic. Through all of that. Ten percent a year.

39:40 I think Lot of what I uh do now and particularly in talking to students is talk about the miracle of These public markets.

39:49 Truly miracles. Really, really fascinating. Um, 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

40:06 or any of that century of of terrible events Um, but you can manage yourself, your allocation, your ongoing savings. Discuss that a little bit. Well that's right. I mean it's um Um In terms of dealing with so it's all about managing uncertainty. So control what you can. And manage what you can't.

40:25 Yeah, manage the uncertain part. You know, uh As best you can. Hey. You can't eliminate it, but you can manage it.

40:31 But by managing it you you're talking about having a a financial plan and sticking to it, continuing to dollar cost average into it. Like there 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 Strait of Hormuz. Yeah, the uh a lot of people they they make portfolio decisions based on their

40:56 Yeah. Forecast of what the market's gonna do. That's a waste of time. You want to pay attention to what's going on. Because you know, over your lifetime there are gonna be situations when you need To change your investment.

41:08 uh policy around It's not based on what's going on in the market. You need to change it. Yeah. You get a new job, you want to retire.

41:16 You know Yeah. family, all these things cause you to Invest differently. That's that's

41:22 But you uh at every point you want to have A long term plan in place. And manage to that. So you can't control Uh the stock market.

41:31 You can control how much risk you take. Basically. Yeah. Two B C. path as you go down. First is the split. How much do you have in stocks?

41:40 At all versus Relatively riskless assets, like a money market fund. All right. Or a bond. Um

41:47 So you you get that right. Second part is then To extent you're investing in stocks. By the whole market. People.

41:54 Yeah, that's That makes you as good as the insiders, you know. People to think of themselves as outsiders. That's another miracle of markets. Right now you have it

42:04 Unlike from my parents who never had that available to'em. Yeah. Now everybody has access. The market is Is good for everyone.

42:12 So let's talk a little bit about financial media, which you write extensively about in the book. Uh another quote of yours. Modern financial media is designed to capture your attention. presenting commentary stories And expert forecasts that are nothing more

42:30 Than distracting noise. Yeah, that's right. I mean Today we have undoubtedly we have a lot more And data thrown at us, uh Than ever before.

42:40 Um I don't know. We have a lot more meaningful information. But we have a lot more data, that's for sure. And so it's It's important these days for people to think critically.

42:51 Uh Oh I always go back to first principles. You know, this year in particular We have You know, some wars and we have

42:59 All kinds of things. Any number of things you could be But I I tell people, look. You know? Do you think you have more anxiety today, or people who have more anxiety today than

43:11 During the Great Depression. Wondering. Say World War Two when it looked like we were losing at first. You know? Those are real serious anxieties. So

43:19 I'm not making light of the anxiety. Right. What a hundred years of data shows us Really a good job of

43:28 of pricing out all that uncertainty and the risks. So another quote in the same section. In investing success Often comes not from doing more. But from

43:40 tuning out more. So I I have to share this with you because 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 it's really difficult and just telling people to tune out the noise It is a waste of time. What what's your argument back?

44:01 Well, first I'm glad to see you get your share of that. I mean I just like it just like I do. I go, um Um Basically What we've outlined is uh you want to have sensible portfolios.

44:16 On the equity side by the whole market. Uh And Um And the market does a great job of pricing. So

44:24 All the anxieties uh Uh that you can express and there are plenty of things to be concerned about. I'm not making light of them at all. Yeah. But that's why the prices are doing whatever it is they're doing. And so

44:37 Unless you're faster than the market, unless you think you're smarter than the market. Uh You know, you just have to assume. That whatever it is you're concerned about's already been priced in. You're too late. By the time

44:47 By the time you know Uh a certain by the time you get a certain piece of information. The market's already reflected it. Yeah. It's already in the price. It's already in the price. You're too late. So so this quote might be one of the most profound things I read in the book.

45:03 And it was it was You know, you read it and you're like, wow, that's really insightful. Or 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.

45:17 It's not about picking stocks, it's about taking stock. of what really matters. Like right? I mean that that's an example of you go back and reread it, I'm like, I wrote that? That's really, really good. No, that's damn fine. And it's because you were implying Hey. This is about Securing your family's future

45:39 But it's not just about money. It's about all the things that really matter. Well yeah, we have a segment in there about what what you Think is uh Uh what what is true worth about? Uh.

45:51 Rather than true wealth. Uh The uh my parents I I describe as being wealthy. They just I didn't have much money. So you want it.

46:00 You wanna focus on uh Um What's really important to you? The quiet dividend of patient compounding in both life and investing. Yeah, I mean one of the

46:11 Things you F first thing is you learn about it. F in finance is the the magic of compounding. You know. If you get

46:18 That ten percent return. You know it means you're portfolio doubles every seven years. You know? And You he double it six times, uh if you have a forty two year rise. That's six.

46:30 Uh For now, seven year periods. So um Um And life is the same way, you know, the you are the result of the

46:40 That you've made in life all the way True. Maybe Yeah, that's where wisdom comes from, is that compounding of

46:50 uh decisions, you know. Really interesting. I really enjoyed the books. They come learn to embrace on unbrace uncertainty and investing in life. Coming up we continue our conversation with David Booth. Author of StayComm and founder of Dimensional Fund Advisors, talking about philosophy.

47:10 and philanthropy. I'm Barry Rittals, you're listening to Masters in Business on Bloomberg Radio. Here are five reasons to subscribe to Bloomberg News Now. Number five, you get the latest news from around the world instantly. Number four, it saves you time. Your day's busy. Catching up takes just a few minutes. Three, it's available twenty four hours a day whenever you need it. Two, it's convenient. Listen on your smartphone or smart speaker. And number one, it's easy to find. Subscribe on Apple Podcasts, Spotify, or anywhere you listen. Five reasons. One simple way to stay on top of the news. Bloomberg News Now. I'm Barry Ridholz, you're listening to Masters in Business on Bloomberg Radio. My extra special guest today is David Booth. He is founder.

47:56 Um and chairman of Dimensional Fund Advisors and author of the new book Stay Calm, Learn to Impress, Embrace Uncertainty in Investing and Life. Um, so I wanted to talk a little bit about both your philosophy and how it developed. And philanthropy we'll we'll circle back to philanthropy. In a minute. Um

48:19 But let's talk a little bit about dimensional You guys. Didn't want to participate in ETFs for a long time. Cause you prefer to Offer your products

48:31 Through advisors. to investing customers. What was the idea of of working through Uh the advisor side of it as opposed to marketing directly to Main Street.

48:44 Well, first off, uh any business um Yeah, the Uh marketing is a big is a big you know, component to any business.

48:55 Brownstone in my apartment. It wasn't like we had a big marketing machine. And we didn't know anything about Uh selling. To uh

49:04 The retail public. Yeah, we did know. Um Institutional investors. And so

49:10 Our first clients Or Large pen typically pension funds, insurance companies, sovereign wealth funds. Um And that was

49:19 First. Eight years or so that was uh who we talked to. And uh The uh one day.

49:28 Uh Dan Wheeler came along. He was a financial advisor in Sacramento. In California, right. You know the name. Yeah. And he uh Said I'd like to have access to your funds. And uh So we we don't know, but

49:40 Over that time It was kind of an unusual. For a firm like ours. To get big institutions to invest in a mutual fund. Uh

49:49 But that's we created a mutual fund. And uh Because they were institutional clients. Our fees were very low. You know.

49:57 Yeah. Institutionally priced. Um And so it made ideal for her. A financial a fee only financial advisor.

50:04 Hm. A fee only advisor being Uh one that we don't pay them any money, they don't pay us. I mean, it's straightly arm's length. No uh year was that with Wheeler? Uh about eighteen and n nineteen eighty nine.

50:17 Mm-hmm. So that was Long before advisors had taken over from stockbrokers. The fiduciary side of the business was still Relatively tiny. It was tiny, but these were highly energized uh financial advisors. I mean these were

50:34 Typically. Advisor would come From a warehouse. felt really dirty about themselves. And uh

50:41 I I'm just repeating what they told me. Oh no, I I've heard it a million times. Yeah. And Yeah to see This approach which is based on science has You have all the data you could ever want.

50:52 Backing up what we do. Uh And You can Come up with a sensible investment approach that

50:59 Und Work over the long haul. Uh. I I had I had s uh someone leave from a warehouse become an advisor And I asked them why.

51:10 This is I don't know, early two thousands, and I'll never forget the line I was told was They're called brokers because they made their clients broke and I'm like, wow, that talk about uh feeling I gotta get out of this side of the street. Yeah, it doesn't um Um

51:27 It doesn't have to be that way. But uh observe. The ability to to beat the market. is such a narrow advantage. You know, uh

51:37 Takes an incredible form. I mean we we're professional Manager and we can do things that A retail client can't do. The uh

51:46 And that uh picking stocks, you know, let's keep in mind. But dealing through market mechanisms and way you trade, securities lending, you know, so on and so forth, you know Um There are are things we can do as a

52:01 But the margins are very important. Mm-hmm. Very slim. The idea that Somebody way down the

52:08 The food chain. A broker and a retail Would have some of that magic. Hmm. Hard to accept.

52:15 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 when getting in the way of compounding? Yeah, absolutely. We have

52:31 I said one of our advisors said it right. You know I don't have Clients with investment problems. I've got investments with client problems.

52:40 That's a great line. But it's The uh the difference is uh between the two is uh education. And we've always So as you know, through education where we

52:49 fight people in for seminars and stuff. And the book. I mean that's why you would do Do the book is to help people. Better understand. How markets work. So they won't.

52:59 Be more confident that he can have a Good investment experience. I'm kinda curious. If that's the reason why you stayed out of ETFs for so long. And

53:12 Uh you know, for people who are Trying to put this in context. DFA launched in nineteen eighty one In twenty twenty Was your first ETF?

53:23 And today you are the largest active ETU ETF issuer in the country. So so Why leave all that money on the table for forty years? Well, I don't know, m m must have been a pandemic. Yeah, something different. Anyway. Uh no, it's um Because early on uh our advisors said they didn't need the ETF. Mm-hmm.

53:44 So the beauty of a regular mutual fund is you go into net asset value at the end of the day. Sure. That's about as clean As you can come up with. If you buy an ETF. Um Um you're buying it in the open market. And for some people that's

53:59 What whatever the open market cost might be The offset of the tax advantage has to wildly out in a in a non qualified account ETFs are vastly superior to mutual fund

54:14 Most of the time for that tax reason. To a conventional mutual fund, I agree with you, but Yeah, we've been able to use the dual class. Yeah have uh Um

54:26 We've been able to eliminate a lot of the Tax advantage of ETFs. Um by the way, that you and Vanguard seem to be the leaders in that space for having an ETF and a mutual fund essentially track the same holdings.

54:41 And now and and coming out this summer and into the fall. We are Innovating even more. Which is we're taking Um

54:50 Right now we have mutual funds and ETFs that do the same thing. So two pools of money. Doing. The same thing. We've um SEC has given us approval.

55:00 To merge those two. So it'll just be one pool of assets with two Uh Ways of accessing it. That will

55:11 Eliminate I mean, I think it's a You w you don't have to worry about it anymore. That that's really that's really cool. Yeah, that's but it should speaks to how science is developing. You know, it's not like we sit on our hands after um

55:26 We're continually. Trying to So so let's talk about another philosophical belief from from you guys. I I'm fascinated by

55:38 Uh. People have have had a hard time wrapping their head around Well is D F A an indexer? Are they an alpha? sort of chaser and and the way I kind of Uh explained it.

55:52 to myself was No, they're when you look at traditional indexers, they're just using one factor of the many Pharma, French factors. And what Dimensional has said is hey, we're gonna use three, four, five factors, so we're indexers Plus the next four factors on the list. Is it is that a fair philosophical breakdown? And there some people that don't want to have a

56:20 um a bias towards value or Oh. Or small cap. And for those we have Kind of plain vanilla funds too that uh aren't buying.

56:29 But Yeah. Um It's about execution. Uh We

56:36 And index fund has to trade in a bizarre Sort of way. The um And we don't uh do that. So we we apply that

56:45 That thinking into all the All the funds. Um So that um Um

56:52 Here again, w what we're trying to do is apply the science. And By that. Yeah. The way we structure portfolios we think we can do better than

57:02 Index providers. And And secondarily the way we trade relative to the way index. That's true in the And and everything we do.

57:11 Um But then we Some clients like to have A small cap bias, some don't, you know, so we It's their money. We

57:19 We uh Try to come up with whatever they think is sensible. So let's talk a little bit about philanthropy'cause I know Uh part of the book discusses legacy and you've been very involved philanthropically Um decade ago you signed the giving pledge.

57:35 Um And I go back two decades. He made a um right around the time of the financial crisis a gift in oh eight to the University of Chicago's business school. Which I think was the largest gift ever in the country or to Chicago at that at that time, three hundred million dollars. And now it's the uh Chicago Booth School of Business. Tell us a little bit about what motivated

58:01 A gift of that size. to that recipient and what are your thoughts twenty years later? Well, okay, f first let me just say it was kinda funny. The announ the announcement for that was Uh made

58:13 in November of two thousand eight. Like the the week after uh Obama got elected for the first time and And uh uh at the school said it but big announcements coming tonight. Free food come in and And they they thought it had something to do with Chicago, yeah. So

58:32 That's when they announced that the school's uh name was Name change. So it's Which by the way wasn't a requirement of your gift. No. You argued against it. No, I didn't argue against it, but I I heard through several people that you pushed back initially. Well, I pushed back a n a little bit, but

58:50 Not a lot. It was What happened was I approached the dean of the business school and said You know.

58:56 It's time for payback here. You know what the university's done for me and the faculty and And not only training me in school, but then following up Over the years.

59:07 Over there. Now forty five years. Yeah. Yeah, people like You know we've had five Nobel laureates work. Very closely with us, all of them been

59:16 Um Um Uh significant directors of our mutual fund or the company, Fama being the founder as well. Um It's time for me to pay back.

59:26 And it's gotta be a big chunk of what I have. Uh So This is what I'm willing To do.

59:33 And uh The team 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.

59:43 You know. But it was It was a It was about me wanting to feel good about me. Well well, you feel uh a sense of obligation to University of Chicago'cause everything they gave you. Uh undergraduate and

59:57 Pre PHD M B A. You were at Kansas And you similar number last year you gave them three hundred million dollars. To the

1:00:07 Kans University of Kansas Athletics Group. Why Focus on sports there. What's so significant about The Kansas uh Athletics,'cause by the way, they would

1:00:19 As a school, they've been doing pretty good. Athletic wise. Yeah, yeah. Well no, it's um First off. Lawrence, Kansas, where the University of Kansas is. It's my home town. I went to Lawrence High School and Then University of Kansas.

1:00:33 So and with all the relatives it's it's uh It's in my blood. And uh Uh for school a big state school like that, what's really important is to have uh great Competitive athletic.

1:00:46 program. I mean I know with the arguments. Some people Yeah, they're not so sure about that. But

1:00:54 It doesn't hurt their marketing, their ability to recruit professors to make the town better. I mean it just m multiplies across everything. Regardless of how you feel about You know uh Yeah, right. I happen to love it and particularly love college basketball, that's where and Kansas has always been

1:01:15 Yeah, really good at And basketball and it's getting better in football. So uh and then with N I L throwing a little dollop of N I L coming down the pipe. Name image image likeness for So it puts you a great

1:01:30 Financial pressure on the schools. Um And It's difficult for uh a state school to Yeah.

1:01:37 have a big budget and for athletics. When they're Their professors are not Yeah, making what they're making. So uh Um

1:01:46 It's important. for private you know, for alums and whatever. You know, to step up and And in order to to uh uh help them

1:01:55 Be successful. And and I'm gonna assume that that this isn't the end of your Academic gifts you're gonna be doing other stuff in the future and uh obviously the giving pledge is is a part of that. But I have to ask about a purchase she made in twenty ten. Which is

1:02:13 You bought Naismith's original document of U essentially, here are the rules of basketball. This is where Basketball was invented. And I think you paid over four million dollars for that, and then you gave it

1:02:27 Um to the University of Kansas athletic department. Explain, tell us about that. Well no way it was really kind of a uh interesting uh auction. James Naismith invented Um Pascal in eighteen ninety one.

1:02:42 Uh peach crate. Yeah, the whole the whole thing. It um It's the only major sport that I can think of. Or we know who invented it.

1:02:51 So it was a class assignment for him. And school. At uh At the Y M C A in Springfield, Massachusetts. So like they they stayed in the family, um

1:03:02 And And Things happen over time. They just So I did. Um

1:03:07 They wanted to sell it. So I decided Um Here again. Basketball is so important.

1:03:14 too. If you live in Lawrence, Kansas He realizes That uh Yeah. Rules of basketball.

1:03:22 No those two typewritten pages. need to build be in Lawrence, Kansas, because Naismith After he invented the game. goes to teach at Kansas for forty years. He's buried in Lawrence. You know, you gotta

1:03:36 So it's store enough, they thought it would go for about two million. But along the way, um I started I was bidding over the phone and there was somebody else bidding over the phone. And kept ratcheting up and ended up paying about four and a half million.

1:03:48 Yeah. Uh of the phone. Who's David Rumstein? Your Blo your Bloomberg uh

1:03:57 Co host, or fellow host. Did you explain eventually to him why you bought that and why it went to Kansas? No, he um Uh paid for it. They it was announced who I who who bought it. So he sent me an email the next day saying, Hey, I think I cost you some money. Yeah.

1:04:17 Which is funny. So we We still have a good chuckle about that. So so last piece of philanthropy I ask to ask about before we get to our favorite questions You're known as an avid art collector. Um if you

1:04:30 Go down that is in Texas, but I've been From from the river if you're You're in a boat. You've endowed the a conservation center at the Museum of Modern Art.

1:04:46 Uh and uh As opposed to Just Donating a sculpture or a painting. You're essentially helping them preserve their entire collection

1:04:56 Well I mean uh preserving the uh the I think your patrimony is important for any country and And art is such a big deal on MoMA has Such a a great uh Spectacular class.

1:05:14 Yeah, it's um Um It's an enormous, enormous collection. It's complicated. So uh Um I I've sat on the board there for about ten years now and it's just truly been

1:05:27 Tremendously exciting and then And down the conservation lab because That's easy to overlook conservation. Yeah. But taking care of Modern art.

1:05:37 Which could be uh S. Uh fiberglass or something, who knows what kinda Stuff goes in.

1:05:49 All that stuff. i is uh you know, uh problematic over time. Yeah, in the old days probably was mm. Kind of. Conservation was

1:05:58 Somebody kind of Having a couple sips of alcohol and and And s daubing some paint on a painting and Trying to clean or whatever. Yes.

1:06:07 That's changed now. It's incredibly sophisticated. You take X rays of the the painting or whatnot. Studying the chemistry of it. So um I'm

1:06:16 Head up I've headed up that conservation committee for quite a while now. It's very exciting what to see what they've done to maintain the art. Really interesting. Alright, I only have you for a couple of more minutes. Let's let's a and and you and I can continue this conversation. in southern California and Huntington Beach in a few weeks.

1:06:35 Um for now let's jump to our favorite questions we ask all of our guests, starting with Tell us about the mentors who help shape your career, and I have a pretty good idea. Yeah, right. Let's just start with the Nobel laureates, Martin. Miller, Jean Fama, Myron Scholes. Um Bob Merton and Doug Diamond.

1:06:56 Um Kind of a That's a murderer's row, right? Murderer's row, yeah. And uh Ad Mac McQueen who

1:07:05 Really started indexing. Yeah. A and then really was the the initial was he the first check into uh DFA? No, he was he was a founder. In fact More important giving us.

1:07:18 Investing in the funds. He helped us raise the money. There is capital for for the firm. So uh And then I I always have to throw in my parents. I mean they uh

1:07:28 Um It ties into what true Well. They uh Never

1:07:35 had much money but they were wealthy. Yeah. I understand. I uh They f they'd figured out what life was about.

1:07:43 Huh, really, really interesting. Uh let's talk about books. In addition to yours, what what are some of your favorites? What are you reading currently? Well, I mean I uh just finished uh Nineteen twenty nine, Andrew Ross Sorkin's new book. That's very And it's on my nightstand, it's uh up in a few books in my queue.

1:08:01 Uh then I uh The last couple of years I've book I really liked a lot was Paris nineteen nineteen. Um

1:08:10 And she takes through. What Uh became known as the Treaty of Paris. When the armistice was signed at the end of World War One

1:08:19 That's just one. All kinds of crazy things happen because The O Ottoman Empire collapsed, the Russian Empire collapsed. Uh Austria Hungarian Empire Class. So all of these

1:08:31 Um So you had to create new countries all over the place. All through central Europe and the Middle East. These were Uh. It it took about six months. Um

1:08:42 To develop the Treaty of Paris. First five. Or so they Didn't do much and then all of a sudden the last month they just got together and Great. I don't know if they could have done much better, but it was pretty chaotic.

1:08:53 Um really interesting. I'm gonna add that I'm gonna add that to my list. Um Tell us uh are you streaming anything? What what do you do to relax, podcasts, movies, what what what entertains you? Well I mean your podcast uh but the uh No. Season of Ted Lasso, which I'm uh really all over, you know, that's you are. My my wife and I are waiting for there to be more than three or four in the queue. It's just too frustrating every to watch one a one a week. By the way, he's a KU alumna as well. Yes, yes, I knew that. So uh

1:09:24 The um And we have uh any number of uh Seriously. You know what happened was When the pandemic hit and he couldn't go out much. I s I watch more T V in that two year period than I ever watched before or since. Same, absolutely the same. It's it's and and it's I I I

1:09:41 I was mentioning the other day That six thirty is the new seven thirty. It used to be If you try to make a dinner reservation around seven, seven thirty The toughest reservation to get. And now it seems the hard reservation is to get

1:09:56 is six or six thirds. Yeah, right. And it's not just that we're aging and heading towards the early bird special. I think people wanna w go to dinner and then come home and watch whatever it is. Ted Lasso or Lioness or Yellowstone, whatever they're There their thing is, it's it's so funny you say that. Um but the pandemic was absolutely the most T V I've watched in my life. Right. Um our our final two questions

1:10:21 Uh I think this book offers a lot of interesting advice. But I wanna ask you specifically for a recent college grad. who is interested in a career in either investing or uh wealth management or anything

1:10:37 Along those lines, what sort of advice would you give them about Building a career. Well first off I don't give advice, but here's here's some thoughts Yeah. Um

1:10:47 First is Um Thoughts that probably everybody will tell you. Figure out. Where do you have

1:10:54 Some skill some comparative advantage or competitive advantage. Yeah. And Um What what do you have what are you passionate about? So marry those two things, passion and skill.

1:11:06 And work really hard. Um Yeah. The part that I don't think it's emphasized enough as

1:11:13 Um, when you by the time you get out of school Um You've developed a set of values. Your personal set of values. Pay attention to that. So

1:11:23 Um Find something you're passionate about that you have a skill in that You know, kinda maps into your values. Uh And

1:11:32 Um Yeah, pay attention to those values and um Um And don't deviate from them in in in pursuit of just a Um

1:11:43 Short term. Job. I mean when you get out of school you Like when I got out of school. Most people. You're just lucky. Find any good job. I mean

1:11:51 But over time you can You kinda iterate towards uh what you really W what do you think is really Uh Valuable.

1:12:00 Good advice or or Or good. um insight. Our final question.

1:12:08 Водою маркис. And investing today. That might have been useful. Back in nineteen eighty one where you when you were first launching Well I think the big one of the big things there is that

1:12:21 Fine. I didn't realise how difficult it would be To persuade people. Thought there's a new way of thinking about investing. Uh.

1:12:29 Um I mean because I'm sitting there Course I'm totally wound up with all the University of Chicago stuff. I mean all the have all the science, the data and so forth. I go Once you explain that to people. They'll flock to it.

1:12:42 No. It's I've been doing this for Fifty five years. I mean. People don't

1:12:49 Flock to new ideas just based on Uh Um on new research or new ideas. You have to Soak the ground down around'em, let'em sink into it. It's

1:12:58 So I I I guess if I'd known how hard it was, I don't know if I would have pursued it, but I think we're getting close. So that's what now I'm at this phase where it's exciting to explain all this stuff to people. Cause they're starting to respond to it. You're getting close. Um keep at it, eventually you'll convince a few people. Good. Um 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. learn to embrace uncertainty in investing and life.

1:13:35 I would be remiss if I didn't thank the crack team that helps with this Conversation together each week. Alexis Noriega. is my video producer Sean Russo is my researcher And a Luke. is my podcast producer.

1:13:51 I'm Barry Rittholz, and before I Say um so long I just want to thank Alexis. for being a fantastic video producer. And helping to put this podcast. in the world of YouTube and and videos. Uh she is departing to take a full time uh gig. That's big promotion for her and we wish her

1:14:13 The best of luck going forward. I'm Barry Ridholz, you've been listening to Masters in Business. On Bloomberg Radio. On the innovators, disruptors, and tech driven trends shaping today's complex economy. I'm Carol Masser. And I'm Tim Stenovek. Wrap up your workday with the Bloomberg Business Week Daily Podcast. We bring you deeper dives into the story shaping your world, from the evolution of AI to the shifting priorities of global business. Plus Silicon Valley Power Players.

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