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

24:10David Booth:Right. 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. Even though you know it's going to run up in anticipation. Right. And even though you know that every other S &P 500 index fund manager that's out there is also going to want that stock at tonight's closing price. So that's where, you know, science, kind of probably all sciences are this way. There's a science and there's the art of the science. You know, you go to medical doctors.

24:51David Booth:Let's say they all study the same textbooks. Well, some of them just better at execution than others. And that's what we're talking about here. You know, the simplest of all ideas is if you're trying to buy a stock at the same time everybody else is, that's probably not a good trade. You know, the intuition would tell you that. And I think our most recent studies shows that the run-up is about 4%. When it goes into the index, the index pays about 4 % more than a fair price. And the flip side is the deletions have a tendency to outperform the S &P over something like 12 or 24 months. Same thing.

25:33People sell in advance. By the time it's actually deleted, it's appreciably cheaper, and maybe that becomes a value.

25:40David Booth:Well, let me give you the downside of our approach, what we're talking about, which is you have to have a certain amount of trust in the manager. because we're not slavery. I mean, the 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 of saying, look, we will 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 wild stock picking. Throwing darts. Throwing darts or whatever. But so we'll use a little bit of judgment. that requires you to have a little confidence in our ability to execute.

26:18David Booth: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 going to be trading against professional investors that think they know, that they think they have undiscounted information, if you will. They have something special, special knowledge, and you don't. Okay, well, it turns out there's a flip side to that, which is if you think you have special insight, 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. Today it's probably milliseconds.

26:57David Booth:Probably milliseconds. So if you want to 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 on any given day. We don't buy all 10 ,000 of them. And we kind of focus a lot on what's trading easily that day. Even a small company stock, 20 % of the time it trades a lot. In other words, you can use execution and volatility as a source of better pricing. Better pricing, yeah. And that's worked out over 45 years. The first 45 were the toughest, I realized. But it's still, people slap their forehead.

27:44That's hard to believe that this professional money manager out there trading against you,

27:50David Booth:it's not that we take advantage of them. We provide liquidity, and our clients get the benefit of providing that service. And by providing liquidity, it means you're willing to be a buyer at times when many other people are not. Right. We're not going to pay retail for that stock, but if you can talk to me, can you do something for me on the price? Take a little something off. Really interesting. Coming up, we continue our conversation with David Booth, founder and chairman of Dimensional Funds Advisor, talking about his brand new book, Stay Calm, Learning to Embrace Uncertainty in Investing and Life.

28:29I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. Today's show is brought to you by Vanguard. 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 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. The goal? Keeping income instability in and unwelcome surprises out, because fixed income shouldn't feel like a roller coaster.

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30:06Put ChatGPT to work on your most ambitious ideas and projects. Get started at ChatGPT.com by selecting Work Mode, available on Plus and Pro plans. As markets move and headlines break, what matters most is context. A Bloomberg subscription gives you unmatched reporting, sharp analysis, and powerful tools that help you connect the dots. Visit Bloomberg.com slash podcast offer to learn more. I'm Barry Ritholtz. 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.

30:52Stay calm. Learning to embrace uncertainty in investing and life. So I'm going to sum up the book in a sentence, and then we're going to really delve into it. Uncertainty isn't something to fear. It's where possibility lives. Explain that.

31:12David Booth:Well, that is a good quote. Every now and then, you know, you write something down. By the way, I have a dozen fantastic quotes, and I'm going to try and click through all of them from you. Yeah, no, it's funny because, I mean, you write it, and then you forget you wrote it. And then you go back and look at it and go, damn. Hey, that's not bad. That's not bad. Yeah, no, it's – and not only – let me talk about a breakthrough that happened to us about 10 years ago. So when we started, we realized that there are a lot of parallels between investing and your life experiences. And a lot of that has to do with how you deal with uncertainty.

31:50David Booth:You know, as you grow, you learn how to deal with uncertainty. And what you realize is uncertainty is what creates opportunity. So if there were no uncertainty, you know, you wouldn't have had the ability to progress, you know. So it's not about eliminating uncertainty. It's about managing uncertainty. And that's true in life. And the reason I bring that up is because that's also true in investing. If there are no uncertainty, in other words, if all investing was riskless, then... I got some 10-year treasuries at 3.5 % that you can hold and barely keep up with inflation. Well, if there's no uncertainty in investing, every investment would have the same return, the riskless return, whatever that is.

32:41David Booth:So it's in investing as well, then it's investing that creates, sorry, 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? You know, well, first off, you realize that life is not totally predictable. I mean, think back 20 years ago. Could you could you have predicted where you are today or where you'll be 20 years from now? Nobody in December 2019 was predicting a pandemic the next year in a market that would scream higher. Yeah, I could show it every annual forecast we see. And we'll talk a little bit about predictions in a minute.

33:22But the future is inherently unknowable.

33:27David Booth:And that's so embrace that uncertainty, though. So that's what gives us the opportunity in life and investing. So what do you say to people who are investors? And, hey, uncertainty creates opportunity. How does the average mom and pop investor, how are they supposed to live through the regular 15, 20, 25 percent drawdowns? we see all the time in equity markets? Well, the quick answer to that is stay calm. That's why we call it the name of the book. I mean, you know, so let me kind of give you kind of an example of the fundamental problem we have with helping people come stay invested. Let's say bad news comes into the market, the pandemic, or a particular stock.

34:22David Booth:And then you look at the stock or the market and you see it's down 20 % or whatever. You go, holy cow, I got to get out. There's bad news in the market and things dropping. That is human nature logic. What we'd like to have people think is, look, okay, pandemic, bad news came into the market. The market's down 20 or 30%. and people were saying, what are we supposed to do? What are we supposed to do? What do you think is going to happen? I go, hey, look, I don't know what's going to happen. And anybody that thinks they can predict what's going to happen, I'd be a little kind of suspicious about.

35:01David Booth:But here's what I believe will happen. People aren't just going to sit there and take it. You know, 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. You know, 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 a big smash in the mouth of these firms. They're not just going to 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.

35:38David Booth:And I don't know who the winners will be and the losers. But what I do believe is we're likely that effort, that human ingenuity, will get us back on track faster than most people think, which is what happened. We saw that during the financial crisis. The pandemic was less than a quarter, down 34 percent. And from that end of the first quarter in 2020, the S &P was up 69 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.

36:15David Booth:OK, we have the pandemic and all kinds of forecasts. And but the consensus was it. I remember at the time, it's likely about a two or three year kind of phenomenon. And so the market's down about 20 or 30 percent. That seems about right to me. I mean, I don't know. 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 really in the late 90s, 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.

36:58David Booth:It was 1998. I don't know if you remember. Sure. Long-term capital management? Yeah, long-term capital. I was on a trading desk. I remember that vividly. Yeah, right. You have the Russian default. You have Asia contagion. He goes around the world, the chairman of the committee, and eventually talks about all the problems around the world. He concludes, so why should we invest in stocks at all? And I said, well, you know, I think he 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%, you know? And he goes, ah. And we stayed invested.

37:33And, of course, we were amply rewarded.

37:36David Booth: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 because 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. that's probably about right given the bad news that we have. If they could go that way. 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. I think your second book should be named What Would Gene Fama Say?

38:14Yeah, right. If market's down 30%, what would Fama say? He'd say it's in the price. Yeah, right. And just sit there and relax and stay calm.

38:23David Booth:That's the science. 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 is you're essentially engaging in wishful thinking. Well, that's right. I mean, you need to have a plan for going forward in life and investing. But don't waste time on trying to predict the unpredictable. Markets are unpredictable. That's why the pros can't beat the market, because the market's unpredictable. And yet, over the long haul, it's been able, if you go back, we haven't talked about the history, but 100 years of returns.

39:09David Booth:that covers the Great Depression, World War II, you know, Korean War, high inflation, great financial crisis, pandemic. Through all of that, 10 % a year. I think a lot of what I do now, and particularly talking to students, is talk about the miracle of the stock and bond markets. These public markets are truly miracles. 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.

39:56Discuss that a little bit.

39:58David Booth:Well, that's right. I mean, in terms of dealing with it, so 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. You can't eliminate it, but you can manage it. But by managing it, you're talking about having a financial plan and sticking to it, continuing to dollar cost average into it. There are things within your control. That's what you should be managing. And the things outside of you control, just accept you can't control what the Fed does or what's happening in the Strattoe Hormuz. Yeah, a lot of people, they make portfolio decisions based on their forecast of what the market's going to do.

40:40David Booth:That's a waste of time. You want to pay attention to what's going on because, you know, over your lifetime, there are going to 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 want to retire, you know, you have a family. All these things cause you to invest differently. At every point, you want to have a long-term plan in place and manage that. So you can't control the stock market. You can control how much risk you take, basically. There are two basic paths you go down.

41:18David Booth: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 then to the extent you're investing in stocks, buy the whole market. People, you know, that makes you as good as the insiders. You know, people that think of themselves as outsiders, that's another miracle of markets. Right now you have it, unlike from my parents who never had that available to them. You know, now everybody has access. The market is good for everyone. So let's talk a little bit about financial media, which you write extensively about in the book.

41:59Another 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.

42:14David Booth:Yeah, that's right. I mean, today we have undoubtedly we have a lot more data thrown at us than ever before. 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 important these days for people to think critically. I always go back to first principles. This year in particular, there's been a lot of anxiety. We have some wars. We have all kinds of things. Tariffs. Any number of things. 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?

42:57David Booth:Those are real serious anxieties. So I'm not making light of the anxiety, but what 100 years of data shows us is the market does really a good job 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 tuning out more. So 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's really difficult. And just telling people to tune out the noise is a waste of time. What's your argument back? Well, first, I'm glad to see you get your share of that.

43:45David Booth:I just like it just like I do. I go, basically, what we've outlined is you want to have sensible portfolios on the equity side by the whole market.

44:03David Booth: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 them at all. So, you know, but that's why the prices aren't 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 know, you just have to assume that whatever it is you're concerned about has already been priced in. You're too late. By the time you know a certain – by the time you get a certain piece of information, the market's already reflected it. It's already in the price.

44:37It's already in the price. You're too late. So this quote might be one of the most profound things I read in the book. And it was, 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. 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 that's not bad 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

45:24David Booth:things that really matter well yeah we have a segment in there about what do you think is uh what is true worth 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. The quiet dividend of patient compounding in both life and investing. Yeah, I mean, one of the things, first things you'll learn about it 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 rise. That's six seven-year periods.

46:18David Booth: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 is that compounding of the effects of decisions, you know. Really interesting. I really enjoyed the book, Stay Calm, Learn to Unbrace 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.

47:23Briefs and scattered information that you have to grind through to turn into something useful can just become something useful. Put ChatGPT to work on your most ambitious ideas and projects. Get started at ChatGPT.com by selecting Work Mode, available on Plus and Pro plans.

47:41David Booth:Here at Bloomberg, we spend all week talking about markets and the economy. And on Fridays, we help you make sense of what it all means for your money. Bloomberg Money is our weekly look at the forces shaping your financial life. We explore personal finance, investing, and retirement with leading economists, strategists, and wealth managers. Join me, Scarlett Fu. And me, Tom Keen, for smart conversations that help you make better financial decisions. Subscribe to Bloomberg Money on Apple, Spotify, or wherever you listen. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

48:15My extra special guest today is David Booth. He is founder and chairman of Dimensional Fund Advisors and author of the new book, Stay Calm, Learn 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 because 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?

49:07David Booth:Well, first off, in any business, marketing is a big component to any business. Now, you have to understand we're starting out of 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. And that was 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. In California, right. I know the name.

49:57David Booth:Yeah. and he said, I'd like to have access to your funds. And so we don't know. But 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 created a mutual fund. And because they were institutional clients, our fees were very low, you know, institutionally priced. And so it made ideal for a fee-only financial advisor, a fee-only advisor being one that we don't pay them any money, they don't pay us. I mean, it's straightly arm's length. What year was that with Wheeler? About 1989. So that was long before advisors had taken over from stockbrokers.

50:47David Booth:Right. The fiduciary side of the business was still relatively tiny. It was tiny, but these were highly energized financial advisors. I mean, these were typically advisors would come from a warehouse, felt really dirty about themselves. And I'm just repeating what they told me. Oh, no, I've heard it a million times. Yeah. 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 wouldn't work over the long haul. I had someone leave from a wire house, become an advisor, and I asked them why.

51:33This is early 2000s, 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, talk about feeling I've got to get out of this side of the street.

51:48David Booth:Yeah, it doesn't have to be that way. But observe, the ability to beat the market is such a narrow advantage. You know, 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 that has nothing to do with picking stocks, you know, let's keep in mind. But dealing through market mechanisms, the way you trade, securities lending, you know, so on and so forth, you know, 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, would have some of that magic is hard to accept.

52:38So 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?

52:52David Booth:Yeah, absolutely. We have said that 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. That's a great line. But the difference between the two is education. And we've always sold, as you know, through education where we invite 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. 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.

53:35And 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?

53:56David Booth:Well, I don't know. It must have been a pandemic. Anyway, 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. Sure. 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. Whatever the open market costs might be, the offset of the tax advantage has to wildly out. In a non-qualified account, ETFs are vastly superior to mutual fund most of the time for that tax reason. Well, to a conventional mutual fund, I agree with you.

54:43David Booth:But we've been able to – Use the dual class. Yeah, we've been able to eliminate a lot of the tax advantage of ETFs. By the way, that's you and Vanguard seem to be the leaders in that space for having an ETF and a mutual fund essentially track the same holdings. And now, coming out this summer and into the fall, we are innovating even more, which is we're taking – right now we have mutual funds and ETFs that do the same thing. So two pools of money doing the same thing. SEC has given us approval to merge those two. So it will just be one pool of assets with two ways of accessing it. Two different wrappers, same pool of money.

55:32David Booth:Same pool of money. So that will eliminate, take away the argument. I mean, you don't have to worry about it anymore. That's really quite cool. Yeah. That speaks to how science is developing. It's not like we sit on our hands after we're continually trying to work through things and become more efficient. So let's talk about another philosophical belief from you guys. that I'm fascinated by, people have had a hard time wrapping their head around, well, is DFA an indexer? Are they an alpha sort of 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.

56:24and what Dimensional has said is, hey, we're going to use three, four, five factors, so we're indexers plus the next four factors on the list. Is that a fair philosophical breakdown?

56:36David Booth:Yeah, that's part of what we do is 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. So we apply that thinking to all the funds. So that here again, what we're trying to do is apply the science. And by that, the way we structure portfolios, we think we can do better than index providers. And secondarily, the way we trade relative to the way index funds trade.

57:31David Booth:That's true in everything we do. But then some clients like to have a small cap bias. Some don't. So it's their money. We try to come up with whatever they think is sensible. So let's talk a little bit about philanthropy, because 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. You made a right around the time of the financial crisis, 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. Three hundred million dollars.

58:18And 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?

58:30David Booth:Well, okay. First, let me just say, it was kind of funny. The announcement for that was made in November of 2008, like the week after Obama got elected. It was the first time. And so there was a big announcement at the school. It said, big announcement's coming tonight. Free food come in. And they thought it had something to do with Obama being... He's a Chicago guy. Yeah, he's a Chicago guy. So that's when they announced that the school's 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. I heard through several people that you pushed back initially.

59:11David Booth:Well, I pushed back a little bit, but not a lot. It was what happened was I approached the dean of the business school and said, you know, it's time for payback here. You know, what the university has done for me and the faculty in not only training me in school, but then following up over the years, over the now 45 years. You know, people like, you know, we've had five Nobel laureates work very closely with us. All of them have been significant directors of our mutual fund or the company, Fama being the founder as well. It's time for me to pay back. And it's got to be a big chunk of what I have.

59:51David Booth:Uh, so this is what I'm willing to do. And, uh, 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, you know, but it was, it was, it was about me wanting to feel good about me. Well, well, you feel a sense of obligation to the university of Chicago because everything they gave you, uh, undergraduate and pre. PhD, MBA. You were at Kansas and you similar number last year, you gave them$300 million to the Kansas University of Kansas athletics group. Why focus on sports there?

1:00:37What's so significant about the Kansas athletics? Because by the way, they would, as a school, they've been doing pretty good.

1:00:44David Booth:Yeah. Yeah. Well, no, it's first off, Lawrence, Kansas, where the University of Kansas is my hometown. I went to Lawrence High School and then University of Kansas. So, and 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, you know, they're not so sure about that. It doesn't hurt their marketing, their ability to recruit professors, students. It is. Make the town better. I mean, it just multiplies across everything, regardless of how you feel about big football in college.

1:01:31David Booth:Yeah, right. But I happen to love it, and I particularly love college basketball. And Kansas has always been really good at basketball, and it's getting better at football. and then with NIL throwing a little dollop of NIL coming down the pike name image likeness get some money 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 not making what they're making so it's important for private, you know, for alums and whatever, you know, to step up and in order to help them be successful.

1:02:19And I'm going to assume that that this isn't the end of your academic gifts. You're going to be doing other stuff in the future. And obviously, the giving pledges 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 that, and then you gave it to the University of Kansas Athletic Department. Tell us about that.

1:02:55David Booth:Well, no way. It was really kind of an interesting auction. James Naismith invented basketball in 1891. If you think about it... Peach crate? Yeah, the whole thing. it's the only major sport that I can think of where we know who invented it. So it was a class assignment for him in school at the YMCA in Springfield, Massachusetts. So it stayed in the family. And as things happened 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.

1:03:49David Booth:Because Naismith, after he invented the game, goes to teach at Kansas for 40 years. He's buried in Lawrence. You know, you got to. So I realized that. Perfect match. Had to buy. So it started off. They thought it would go for about$2 million. But along the way, 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$4.5 million. The person on the other end of the phone was David Rubenstein. Get out! Oh, that's hilarious. Your Bloomberg co-host or fellow host. That's amazing. Did you explain eventually to him why you bought that and why it went to Kansas?

1:04:29David Booth: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. So last piece of philanthropy I has 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 could see some of your sculptures 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.

1:05:20Tell us a little bit about that. Well, I mean, preserving your patrimony is important for any country,

1:05:26David Booth:and art is such a big deal, and MoMA is such a great museum. Spectacular collection. Spectacular. Of which, like, 3 % is displayed at any time. Yeah, it's... It's an enormous, enormous collection. Yeah, it's complicated. So I've sat on the board there for about 10 years now, It's just really been tremendously exciting. And then I doubt the conservation lab because that's easy to overlook conservation. Yeah. But taking care of particularly modern art, which could be some fiberglass or something, who knows what kind of stuff goes in. To say nothing about how paint decays, how canvas decays, paper, all that stuff is, you know, problematic over time.

1:06:16David Booth:Yeah, in the old days, probably it was kind of conservation was somebody kind of having a couple sips of alcohol and daubing some paint on a painting and trying to clean or whatever. That's changed now. It's incredibly sophisticated. You take x-rays of the painting or whatnot. It's studying 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. Really interesting. All right. I only have you for a couple of more minutes. Let's let's and you and I can continue this conversation in Southern California and Huntington Beach in a few weeks.

1:06:59For now, let's jump to our favorite questions 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.

1:07:08David Booth:Yeah. Who they are. Well, no, that's right. Let's just start with the Nobel laureates, Merton Miller, Gene Fama, Myron Scholes. Bob Merton and Doug Diamond. Kind of an impressive group of characters. That's a murderer's row, right? Murderer's row, yeah. Then I had Mac McQuown, who really started indexing. And then really was the initial, was he the first check into DFA? No, he was a founder. In fact, more important than giving us investing in the funds, he helped us raise the money, the risk capital for the firm. so uh and then i i always have to throw in my parents i mean they uh um it ties into what true wealth is about they uh never had much money but they were wealthy they i understood i uh they figured out what life was about 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 just finished 1929, Andrew Ross Sorkin's new book.

1:08:18David Booth:That's very, very interesting. That is on my nightstand. It's up in a few books in my queue. Then I, in the last couple of years, a book I've really liked a lot was Paris 1919 by Margaret Macmillan. And she takes 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, Austro-Hungarian Empire collapsed. So all of these – so you had to create new countries all over the place, all through Central Europe and the Middle East. these were uh it took about six months um 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 and great i don't know if they could have done much better but it was pretty chaotic huh 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, but we have a new season of Ted Lasso, which I'm really all over.

1:09:34David Booth:You are. 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. By the way, he's a KU alum as well. Yes. Yes, I knew that. And we have any number of series. You know, what happened was when the pandemic hit and he couldn't go out much, I watched more TV in that two year period than I ever watched before or since same absolutely the same it's and it's I was mentioning the other day that 630 is the new 730 it used to be if you tried to make a dinner reservation around 7, 730 it was the toughest reservation to get and now it seems the hard reservation is to get 6 or 630 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 their their thing is it's it's so funny you say that um but the pandemic was absolutely the most tv i've watched in my life right um our our final two questions uh i think this book offers a lot of interesting advice but i want to ask you specifically for a recent college grad who was 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?

1:11:05David Booth:Well, first off, I don't give advice, but here's some thoughts. First is thoughts that probably everybody will tell you. Figure out where do you have some skill, some comparative advantage or competitive advantage. And what are you passionate about? So marry those two things, passion and skill, and work really hard. Now, the part that I don't think it's emphasized enough is by the time you get out of school, you develop 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 short-term job.

1:12:08David Booth:I mean, when you get out of school, like when I got out of school, most people, you're just lucky, find any good job. I mean, but over time, you can iterate towards what you think is really valuable. 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 have been useful back in 1981 when you were first launching dimensional funds? 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.

1:12:53David Booth:I mean, because I'm sitting there, of course, I'm totally wound up with all the University of Chicago stuff. I mean, I'll 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. I mean, people don't flock to new ideas just based on new research or new ideas. You have to soak the ground down around them and let them sink into it. So 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 in this phase where it's exciting to explain all this stuff to people because they're starting to respond to it.

1:13:35David Booth:And I really find it great. You're getting close. Keep at it. Eventually, you'll convince a few people. Good. 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. 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. I'm Barry Ritholtz. And before I say 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 videos.

1:14:30She is 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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