Speaker 1: This is Masters in Business with Barry Ridholts on Boomberg Radio.
Speaker 1: This week. I was privileged to travel to the University
Speaker 1: of Chicago to the Booth School of Business, where I
Speaker 1: got to sit down with Eugene Fama, Nobel Laureate, Chicago
Speaker 1: Booth School of Business UM, founder of the Efficient Market hypothesis,
Speaker 1: creator of effectively the three, five and seven UH Fama
Speaker 1: French factor model, basically the father of modern finance. I
Speaker 1: don't know how else to describe him, along with his
Speaker 1: best student, David Booth, co founder of Dimensional Funds, the
Speaker 1: person that the Booth School of Business is named after.
Speaker 1: What can I tell you? I flew out to Chicago.
Speaker 1: UH basically went to the Booth School of Business at
Speaker 1: the University of Chicago where they were celebrating this relationship
Speaker 1: that both Fama and Booth have had for literally fifty years.
Speaker 1: I got to sit down with the two of them
Speaker 1: for an hour in front of about five people in
Speaker 1: the audience, including a lot of students from the Boost
Speaker 1: School as well as other notables who were in attendance.
Speaker 1: And Fama is notoriously press shy. He does not do
Speaker 1: a whole lot of UM interviews with the media. This
Speaker 1: was just a delight. I can't begin to say how
Speaker 1: just awesome he was. He's a provocateur. He likes to
Speaker 1: say things that are very much, um contrarian. He's a
Speaker 1: little bit you know, if Farma was on Twitter, he
Speaker 1: would be a troll. He loves to tweak people, especially
Speaker 1: his buddy and fellow Nobel laureate Richard Taylor. Uh. He
Speaker 1: was busting his jobs about behavioral finance, basically saying it's
Speaker 1: all just pushed back to the efficient market hypothesis. Uh.
Speaker 1: David Booth, also very insightful, had a lot of things
Speaker 1: to say. There's obviously a tremendous amount of respect at
Speaker 1: between the two of these guys. I could babble about
Speaker 1: my experience in Chicago for hours, but rather than do that,
Speaker 1: why not just say my conversation with Eugene Vama and
Speaker 1: David Booth. There is so much material to cover. We're
Speaker 1: gonna keep this to about four hours. We'll take a
Speaker 1: break for dinner, and then we'll finish up before midnight. Um.
Speaker 1: So I really don't have to introduce either of these gentlemen,
Speaker 1: but let me just put a little more flesh on
Speaker 1: the bones of what what the Dean started with. Obviously,
Speaker 1: Jean is best known for not only the efficient market hypothesis,
Speaker 1: but his research on portfolio theory, asset pricing, the Fama
Speaker 1: French factor models. He is recipient of the Nobel Prize
Speaker 1: in in Economics, and I like the sentence that the
Speaker 1: Nobel group used quote for stuff for his work showing
Speaker 1: quote stock price movements are impossible to predict in the
Speaker 1: short term and that new information effects prices almost immediately,
Speaker 1: which means markets are efficient. David co founded Dimensional with
Speaker 1: another University of Chicago alum, Rex Sinquefeld in one The
Speaker 1: firm now employees four hundred people who helped manage five
Speaker 1: hundred and seventy nine billion dollars over the twenty years
Speaker 1: ending in twenty eighteen. Eight of dimensionals equity and fixed
Speaker 1: income funds beat their benchmark the rest of the industry
Speaker 1: just seventeen and that's based on much of the work
Speaker 1: that Professor Fama did. So so let's jump into the
Speaker 1: history um of both Gene and David and see where
Speaker 1: it goes. Jeane, during your last I feel weird calling
Speaker 1: you Gene. It really should be Professor Farma, shouldn't it Um?
Speaker 1: During your last year toughs. You worked for Professor Harry
Speaker 1: Ernst who had a light gig running a stock market
Speaker 1: forecasting service, and you did research for him. What sort
Speaker 1: of work did you do with this stock forecasting research?
Speaker 1: I was devising schemes to beat the market, and how
Speaker 1: did that work out? Worked out fine? And on the
Speaker 1: data that I fitted to didn't work out fine on
Speaker 1: the whole load sample never did So that was a
Speaker 1: lesson that data judging continn of things that aren't really there.
Speaker 1: And how did that research into forecasting the stock market
Speaker 1: impact your thinking about whether or not the market could
Speaker 1: be be well? When I came here to Chicago, uh,
Speaker 1: research on asset prices had again to get going in
Speaker 1: really serious way, and many people were interested in the
Speaker 1: question of how well stock prices adjusted to new information.
Speaker 1: Put in context, they always say it started because of computers.
Speaker 1: Before really didn't have a serious computer too do data
Speaker 1: analysis on. And with the coming of computers, statisticians economists
Speaker 1: were they had a new toy too to play with
Speaker 1: and stock stock prices were easily available, so that was
Speaker 1: one of the first things they started to study. And
Speaker 1: then immediately the economists said, well, how do we expect
Speaker 1: prices to behave if the world was working properly, in
Speaker 1: other words, if markets were efficient. They weren't using that term,
Speaker 1: but that's what they were after, and they were all
Speaker 1: kinds of theories proposed. They had lots of shortcomings to them,
Speaker 1: and a little bit of time we came to the
Speaker 1: efficient market hypothesis. And you were in your senior year Toughs.
Speaker 1: You had applied here, but you never heard back from
Speaker 1: the school. Is this an urban legend or is this true?
Speaker 1: So what happened? I called? I called in uh the
Speaker 1: Dina students toff at Keff answered, that wouldn't happen today.
Speaker 1: The school is so much bigger. The dean students doesn't
Speaker 1: even have a telephone. Way too important for that. So
Speaker 1: he answered the phone. We chatted for a while and
Speaker 1: he said, well, I hate to tell you, but we
Speaker 1: don't have any record of your application. So what kind
Speaker 1: of grades do you have at Toughs? And I said
Speaker 1: pretty much a lazy. He said, well, we have a
Speaker 1: scholarship for someone from Toughs. Do you want it? And
Speaker 1: then that's how that's how I ended up at the
Speaker 1: University of Chicago. So so you come here as a
Speaker 1: student you're you're finishing your work. Eventually, Martin Miller says
Speaker 1: to you, Hey, do you want to stick around and
Speaker 1: keep doing the sort of research you're doing? Is that
Speaker 1: how you became a professor here? Yeah? I was. I
Speaker 1: had offers that some other places, um, but lots of
Speaker 1: the places turned me down. They said it was to Chicago.
Speaker 1: I don't know what that meant actually, but but uh,
Speaker 1: it was very rare to hire somebody from your ound
Speaker 1: PhD program onto the faculty. They're only gonna one or
Speaker 1: two before there. So, David, you had a somewhat different experience.
Speaker 1: You grow up in Kansas, you get a b a
Speaker 1: in economics and a master's from the University of Kansas.
Speaker 1: What made you decide to come to Chicago. Well, I
Speaker 1: did a little bit of reading um in finance um
Speaker 1: and um my had a finance professor there that gotten
Speaker 1: his PhD here, and he said, finances exploding really emerging
Speaker 1: as an academic discipline. It's really one of the the
Speaker 1: epicenters is clearly Chicago. And so I thought, well, I, God,
Speaker 1: I should be fun, maybe be a professor. So I
Speaker 1: applied here. Uh. Um, Yeah, I started to stay, took
Speaker 1: jeans class my very first class, and is was the
Speaker 1: Dean Correct? Was that literally fifty years ago? Fifty years
Speaker 1: ago this fall? It was. Yeah, it was the first
Speaker 1: year that Chicago had a football team in thirty four years.
Speaker 1: And you had written about your experience taking a class
Speaker 1: with Gene. You called it um life changing and transformative.
Speaker 1: In what ways was it life changing? Well? Life changing
Speaker 1: led to a career. I mean, I can't have much
Speaker 1: of a bigger change than that, but it's um life changing.
Speaker 1: And then I think everybody here probably UM, I would
Speaker 1: like to think of themselves UM having a public purpose.
Speaker 1: At the end of it all, when you get to
Speaker 1: be my age, you want to look back and I
Speaker 1: think somehow the world was better off for your having
Speaker 1: been here. And so these ideas that were coming out,
Speaker 1: you know, the essence of efficient markets, it was already
Speaker 1: well developed. He had already coined the term UM. And
Speaker 1: you just said, this is enormously useful. If you look
Speaker 1: at the way money was managed fifty years ago, people
Speaker 1: are getting ripped off. I mean, fees were way too high.
Speaker 1: You know, the commissions were fixed by the government, uh
Speaker 1: at about ten times what they are today, and uh
Speaker 1: we forth it's free today. So it's a lot more
Speaker 1: than ten x yeah. Yeah, yeah, So it's um. I
Speaker 1: think there was a spirit of that we can improve
Speaker 1: people's lives, you know, a real purpose to all of this.
Speaker 1: Gene um more on the research side, and I've thought
Speaker 1: my role in all this would be more on the
Speaker 1: application of the ideas. So you become Jane's teaching assistant.
Speaker 1: How did that come about? I always I always picked
Speaker 1: the student in the class in the previous year to
Speaker 1: be the teachers good student. It's the best of the class.
Speaker 1: You don't have to laugh at that. I mean, so
Speaker 1: best student, professor Farmers teaching assistant. Why not a career
Speaker 1: in academia. Well, first off, I realized I could never
Speaker 1: compete with gene I mean when you're at the top
Speaker 1: of the mountain. Um. But it's really something. It caused
Speaker 1: me to reflect and you know, really internally and what
Speaker 1: what am I about? What do I enjoy? And I
Speaker 1: I just saw this as a great opportunity to go
Speaker 1: out to apply all these ideas people were developing. Every
Speaker 1: new paper coming out was a landmark paper. It was
Speaker 1: it was all brand new stuff, and uh, none of
Speaker 1: them was being applied. So we're gonna come back to
Speaker 1: the application very shortly. But you mentioned that all these
Speaker 1: new ground baking, groundbreaking papers were coming out. Professor Farmer,
Speaker 1: your doctoral thesis in four was the behavior of stock
Speaker 1: market prices, And this sentence jumps right off the page
Speaker 1: quote chart reading, though perhaps an interesting pastime, is of
Speaker 1: no real value to the stock market investor. So this
Speaker 1: gets published in the Journal of Business in nine. What
Speaker 1: sort of pushback do you get to the general concept
Speaker 1: that UM charts are of no use past market walk
Speaker 1: is of no future predictability to what happens going forward.
Speaker 1: You got a lot of a lot of pushback from
Speaker 1: the professionals. The academics looked at the data, looked at
Speaker 1: what people were saying, what they were showing, and adopted
Speaker 1: it right away. I mean, there was no prospect among
Speaker 1: the academics. Really, it's really the beginning of I mean,
Speaker 1: if you had to summarize really impact of all this
Speaker 1: is UM what was going on in Chicago then really
Speaker 1: changed the way people think about investing. And that's really
Speaker 1: been the theme, and Jen has changed the way people
Speaker 1: think about investing more than that's that's the pre and
Speaker 1: post law line, pre FAMA and post Fauma there's a
Speaker 1: ce change. I don't like the postframa business meaning meaning
Speaker 1: post publication of your way. So we not only have
Speaker 1: your doctoral thesis, we have the efficient market paper. We
Speaker 1: have the FAMA French three factor paper. There are a
Speaker 1: number of very very influential papers that David, if I'm
Speaker 1: hearing you correctly, you're saying that changed the firmaments of
Speaker 1: finance forever, changing it forever and for the better. I mean,
Speaker 1: I get particularly, and there's among students there's this kind
Speaker 1: of antipathy towards finance and economics, you know, and they
Speaker 1: don't realize how much UH finance has changed for the better.
Speaker 1: People's lives have been improved by these ideas in this research,
Speaker 1: lower fees, better of risk control, and so forth. So
Speaker 1: so let's let's compare then and now a little more specifically,
Speaker 1: and we'll start by talking efficient markets. Back in the
Speaker 1: days when active managers were dominant, inefficiencies could still be
Speaker 1: easily found, as could to percent fees. Professionals didn't believe
Speaker 1: markets were efficient. They thought they were kind of sort
Speaker 1: of eventually efficient. I doubt many of them would say
Speaker 1: that today, what do you think has changed to bring
Speaker 1: so many people over to the efficient market theory, well,
Speaker 1: the accumulation of of performance evidence. So back then there
Speaker 1: wasn't there was no real evidence on how these people did. Uh.
Speaker 1: And one of the first papers was like Jensen's thesis,
Speaker 1: which studied new toral funds for the previous twenty five
Speaker 1: years and so that basically they weren't beating the market. Uh.
Speaker 1: And now we know on hindsight that in fact that
Speaker 1: has to be true that active management is a zero
Speaker 1: sum game before cost because they don't they can't win
Speaker 1: from the passive managers because the passive people hold cap
Speaker 1: weight portfolios. They don't, they don't overweight and underweight in
Speaker 1: response to what the active people do. So if there's
Speaker 1: anybody underweighting and overweighting, there has to be another active
Speaker 1: manager on the other side doing the opposite, which means
Speaker 1: if one wins, the other loses some of those is
Speaker 1: zero before costs arithmetic of active management. He calls it
Speaker 1: the arithmetic because it is arithmetic. It's not a proposition.
Speaker 1: It has to be true for everyone, or there's an
Speaker 1: offsetting loose. So what about technology, how does that impact
Speaker 1: how fast information makes its way into prices? It should
Speaker 1: make it better, Uh, but you know, truth is, prices
Speaker 1: are so volatile. Markets have always looked really efficient. They
Speaker 1: don't look anymore efficient than they and they ever have
Speaker 1: with the introduction of all the technology. So if information
Speaker 1: is spread much more quickly now than it was fifty
Speaker 1: years ago because you have so many sources and they're
Speaker 1: so quick, but you can't really see in the data
Speaker 1: that that's had a quantum effect on the adjustment of
Speaker 1: crisis to information. So we may not be able to
Speaker 1: see it explicitly in the data. But when we look
Speaker 1: at things like hedge fund performance, they did very well
Speaker 1: before the financial crisis, since then not as well. We
Speaker 1: look at the money flows away from expensive active towards
Speaker 1: inexpensive passive, it sounds like lots of investors are voting
Speaker 1: with their dollars that, hey, the market is efficient and
Speaker 1: we can't beat it. Doesn't it seem like technology is
Speaker 1: dry having some of that Because there used to be
Speaker 1: information asymmetries. There used to be inefficiencies that a savvy
Speaker 1: manager might have been able to find. It sounds like
Speaker 1: it's even harder to find those inefficiencies today than thirty
Speaker 1: years ago. Um, Hey, you have better information than I
Speaker 1: do because you're saying, so it's always looked, it's always
Speaker 1: been that, it's always been zero sum game. I've been
Speaker 1: in the business now almost fifty years, and every year
Speaker 1: people say, next year is gonna be the stockpickers stockpickers market?
Speaker 1: Well Gene saying is it's arithmetically impossible. So so let's
Speaker 1: talk a little bit about index funds. Gene. You introduced
Speaker 1: David when he is finishing his NBA and wants to
Speaker 1: go out into the world of work, to John McGowan
Speaker 1: over at Wells Fargo, where they were developing as an
Speaker 1: institutional product, the first index fund. What made you think
Speaker 1: that that was a good fit for for David mac mcclown,
Speaker 1: who was in charge of the Wells Fargo unit, came
Speaker 1: to well the seminars we did here for business people,
Speaker 1: we didn't twice a year, the Center for Research and
Speaker 1: Security Prices were in seminars for interested business people and
Speaker 1: Mac came to all of them and he seemed very
Speaker 1: you know, into the new stuff. And so when it
Speaker 1: came down the David said, I see what you do,
Speaker 1: but I don't want to do it as an academic.
Speaker 1: So I called Mac and said, I have a really
Speaker 1: good student here if you've got a place him and
Speaker 1: he did. So what was your experience like it? Wells
Speaker 1: Fargo working on that index one, Well, there was a
Speaker 1: terrific experience, great exposure. I learned the importance of a
Speaker 1: client work. I mean investment businesses part technology or investment science,
Speaker 1: and it's part client work. And as I've told Jean,
Speaker 1: you know, I studied finance for two years, I've been
Speaker 1: studying client work at the last you know. And that
Speaker 1: was we uh, we were so naive about dealing with
Speaker 1: clients and what they would be interested in, and we
Speaker 1: were so pumped up, jazzed up about the ideas. Somehow, um,
Speaker 1: we missed the mark and actually my group got it
Speaker 1: was unsuccessful, we got shut down, but they were um,
Speaker 1: the other parts of the bank kept it going. And
Speaker 1: now that little project we started end up as through
Speaker 1: various hands, is now a big part of black Rock.
Speaker 1: So so let's that's right. It eventually ended up going
Speaker 1: to Barclays and then black Rock bis them and now
Speaker 1: I shares I think they're coming up on six or
Speaker 1: seven trillion dollars not to not too shabby. Um, but
Speaker 1: let's talk about the application of genes theories to the
Speaker 1: practice of working with clients post Wells far ago. You
Speaker 1: decide to open the small microcap fund out of your
Speaker 1: second bedroom in an apartment in Brooklyn. Tell us how
Speaker 1: you applied Professor Farmers research to that microcap fund. Well,
Speaker 1: the first thing is, UM, we decided UM not to
Speaker 1: have UH around the portfolio like an index fund, even
Speaker 1: though at first we call it an index fund because
Speaker 1: it's very similar to indexing. With the final step being
Speaker 1: UM that we don't trade UH market on clothes like
Speaker 1: many index funds do. UM. And what that means is
Speaker 1: we were we would be trading stocks throughout the day. Well,
Speaker 1: that created a lot of skepticism, particularly among academics, because
Speaker 1: you're going to the marketplace. You know, you don't have
Speaker 1: any undiscounted information. People on the other side of your trade,
Speaker 1: largely institutions, think they know a lot about the stock.
Speaker 1: You know, why won't they just rip your eyes out
Speaker 1: when you're trading. That's a that's a quite legitimate question. Uh. Well,
Speaker 1: I mean that the answer is there a lot of
Speaker 1: things you can do to use the energy of markets
Speaker 1: and the power of markets to your advantage. It turns out,
Speaker 1: for example, if we want to buy a stock. Let's say, um,
Speaker 1: they have an institution wants to sell it. Their anxiety
Speaker 1: is greater than ours, so we can use that their
Speaker 1: interest in trying to do a quick trade to our
Speaker 1: advantage and protect ourselves. And there's you know, plenty of
Speaker 1: information now floating out about the stock that you can
Speaker 1: use to protect yourself. But that wasn't known back then.
Speaker 1: It was just we had a belief in markets, belief
Speaker 1: and and how they work based on what we studied
Speaker 1: here and said, look, we think we can go out
Speaker 1: and trade these stocks and not uh not get killed
Speaker 1: that there were two pieces done here and it's most
Speaker 1: stuck turns and most of the academics said, well, it
Speaker 1: looks good in terms of the crisp historical data, but
Speaker 1: in fact, if you try to trade it, you're going
Speaker 1: to get swamped by trading costs. Uh. And that was
Speaker 1: the so called market micro struct just stuff. And then
Speaker 1: we figured out what we found out what dimensional was, No,
Speaker 1: he really didn't have to pay those big bit ast
Speaker 1: spreads that you were seeing. You could go fewer, was
Speaker 1: patient trader. You could do better with the prices, so
Speaker 1: we could deliver this small stuff premium. But previous to that,
Speaker 1: people weren't believes what the academics learned was the market
Speaker 1: micro structure stuff was garbage. Basically they didn't really understand. Interesting. Um,
Speaker 1: what we learned about clients along the way, which was
Speaker 1: seeing in our initial clients were all large, largest pension funds,
Speaker 1: essentially insurance companies around the world, and they weren't hopening
Speaker 1: the stocks of small companies. So really the pitch we
Speaker 1: got into all this stuff, but we hadn't even easier argument,
Speaker 1: which was, look, you ought to hold stocks of large
Speaker 1: companies and small, and you're not holding small, so we'll
Speaker 1: get you access to small. So that was the really
Speaker 1: the sales pitch that put us on the map. And
Speaker 1: so that sales pitch starts to take off and dimensional
Speaker 1: operating out of your apartment gets bigger. There's kind of
Speaker 1: an urgent urban legend that you called New York Telephone
Speaker 1: to have them add six phone lines and they refused.
Speaker 1: They thought you were running a bookie joy. Is that
Speaker 1: remotely true? Yeah, this was about the kind of at
Speaker 1: the bottom of Brooklyn Heights, uh, bottom of its history.
Speaker 1: It's so we started on a shoe string and we
Speaker 1: ran the portfolio. Was the first portfolio manager running out
Speaker 1: of my spare bedroom. So I knew we needed more
Speaker 1: phone lights. So I called up New York Telephone, which
Speaker 1: was a telephone company at the time. So the need,
Speaker 1: you know, uh some telephone lines and I know six
Speaker 1: or eight or whatever, and they thought it was a bookie,
Speaker 1: so they wouldn't give me the lines. So I had
Speaker 1: to call up the Treasure of New York tell say,
Speaker 1: can you send some people down here and give me
Speaker 1: some telephone lines. And they went around the whole block
Speaker 1: and found that there were six lines available available and
Speaker 1: the whole block that based on their equipment, and they said, okay,
Speaker 1: you can have those six lines. And that's how we
Speaker 1: got started. And the punch line is he becomes a client. Yeah, yeah, right,
Speaker 1: New York that was a clickly became a clie down.
Speaker 1: So so from from day one, Gene is a board
Speaker 1: member of Dimensional Funds. From the day it launches, well
Speaker 1: even before I mean, we have the idea to start
Speaker 1: the firm. Uh uh. My first call it was to
Speaker 1: Gene say, look, you know, it's been ten years since
Speaker 1: I was in school. We uh, there's been a lot
Speaker 1: of research, you know, we we needed we needed to
Speaker 1: have access to you know, new research and thinking. And
Speaker 1: would you be on the you know, one of the
Speaker 1: founders and and uh and and be our list you know,
Speaker 1: our our eyes in terms of research. And he agreed
Speaker 1: to do that right away. Who else did you recruit
Speaker 1: from GSP? Well, eventually we found out we had to
Speaker 1: have We wanted to create a mutual fund, and a
Speaker 1: mutual fund has to have an independent board of directors.
Speaker 1: So Rex and I went over the Business School, walked
Speaker 1: into Martin Miller's office. They still teach mollarble deiply on
Speaker 1: the theaters, don't take Yeah, okay, Uh. So Martin was there.
Speaker 1: We said to you know, he added a YadA small
Speaker 1: company fund need independent directors and um and said, oh sure.
Speaker 1: And I walked out the door and down the hall
Speaker 1: and Myron Schulz was coming out of his office. I
Speaker 1: gol Myron, he had the YadA. See Gene's point. Business
Speaker 1: school was a lot smaller then, and having been to
Speaker 1: the pH d program, I got to know the faculty
Speaker 1: pretty well. So Myron uh agreed to join, and so
Speaker 1: on and so forth. So in fact, until recently, all
Speaker 1: the independent directors of the mutual fund, our mutual fund
Speaker 1: be Uh have taught at Chicago, so his his business partner,
Speaker 1: Reck Singfield, was in my class as well. He was
Speaker 1: really the first one to put out an index one,
Speaker 1: wasn't he? No, No, it was but but Rex. Actually
Speaker 1: that was when I was his teaching consistent. He took
Speaker 1: uh jeans class. And Rex was always uh one of
Speaker 1: these pain in the neck as a teaching consistant students
Speaker 1: because he was interested in everything you know. I'm so Jean.
Speaker 1: You moved pretty easily back and forth between academic theory
Speaker 1: and real world application of theories. Not a lot of
Speaker 1: people were able to bridge that gap between academics. Well
Speaker 1: I hadn't. I hadn't been able to bridge it either
Speaker 1: until Dimentcino came along. But here it is. It's forty
Speaker 1: years later, and you seem to continue to be right
Speaker 1: because he Uh. The reason they couldn't just because one,
Speaker 1: it's hard to shut me up. I don't take a
Speaker 1: party line too too too easily. And he didn't. Ever,
Speaker 1: He and Rex never said would you please do this?
Speaker 1: What they said was, you do what you do and
Speaker 1: we'll figure out if we can use any of it.
Speaker 1: And that fits in with the way I work so
Speaker 1: frequently he would come in and say, look, get get
Speaker 1: ready to make a presentation for our clients. They go,
Speaker 1: you know, I don't know what your clients are gonna
Speaker 1: want to hear this. I go, look, Jane, you know,
Speaker 1: say what's on your mind. It's been controls my department,
Speaker 1: you know. And that seems to have worked out. So
Speaker 1: what was your involvement with the investment committee in the
Speaker 1: early days of dimensional um? Were you participating actively in it?
Speaker 1: Were you managing it? What were you doing? Well? I
Speaker 1: was doing this back and forth with the research stuff.
Speaker 1: But then they started a fixed income fund based on
Speaker 1: fixed income research they had done in the seventies, and
Speaker 1: they said, do you want to come in and trade
Speaker 1: it for a day? And I said, sure, I remember
Speaker 1: traded anything. So I went in. I know how much
Speaker 1: money did we? Here were ten million dollars from somebody
Speaker 1: and I managed to buy twenty million dollars of bonds
Speaker 1: and that was a big problem. Actually, so waitwa, Gene
Speaker 1: Fama day trader. I just want to make sure that
Speaker 1: that was the last day. But I couldn't see the problem,
Speaker 1: that's right. Um, So you introduce the Fama French paper
Speaker 1: on value dimensional funds, introduce as a US large value
Speaker 1: and you are small value. In ninety three on another
Speaker 1: farm of French paper leads to international value coming out
Speaker 1: in that paper won a Graham and Dot Award of Excellence.
Speaker 1: Was there anyone else trying to apply this sort of
Speaker 1: academic research to either investing theory or the creation of
Speaker 1: investable products on the market? There they're always kind of um.
Speaker 1: Departments of big banks and people were kind of playing
Speaker 1: around with it. But we were the only ones willing
Speaker 1: to stand up and say, um, this is what we
Speaker 1: believe and this is what we think you ought to do. Um.
Speaker 1: Now they're we have all the quant managers out there.
Speaker 1: We got tons of people uh uh out there, you know,
Speaker 1: trying to apply the same data. And back then we
Speaker 1: basically were at In fact, I often go around and
Speaker 1: show people thirty year track record on the various funds
Speaker 1: UM and I go, you know, we had a lot
Speaker 1: of competition back then, but they don't seem nobody seems
Speaker 1: to have a thirty year track record. They did not
Speaker 1: survive long enough to So let me fast forward, um
Speaker 1: a couple of decades to the mid two thousand's. In
Speaker 1: two thousand and eight, David Booth made the largest donation
Speaker 1: ever given to a business school, which has been called
Speaker 1: a transformational gift. Tell us about your thinking. What made
Speaker 1: you decide in the middle of the financial crisis to say,
Speaker 1: I know, I want to make a donation to my
Speaker 1: alma mater. Well, it was I'm kind of ties into
Speaker 1: the story I was talking about earlier. I mean, what, Uh,
Speaker 1: it got to be the stage where it was time
Speaker 1: to pay back, and um, I mean I wouldn't been
Speaker 1: anywhere without Chicago. So I said, I wanted to give
Speaker 1: a big chunk of what I have and uh, um,
Speaker 1: this was a mix of stocks and cash, Is that correct?
Speaker 1: And it was actually, Um, I didn't have a lot
Speaker 1: of cash at that time. It was because we just
Speaker 1: recently started to accumulate the money big enough to but
Speaker 1: I had stock in the firm, and so I gave
Speaker 1: him basically ownership of a big chunk of the of
Speaker 1: the stock that I had, and they were willing to
Speaker 1: take a bit on that. And it turned up to
Speaker 1: be a convet and that that comes with a dividend
Speaker 1: which continues to pay its way to uh to booth.
Speaker 1: Were you at all concerned that you were right in
Speaker 1: the middle of a financial crisis giving ownership of a
Speaker 1: financial firm. A lot of firms did not make it
Speaker 1: through the financial crisis. Yeah, maybe it ties in with
Speaker 1: the earlier question about what I learned from here about
Speaker 1: markets and how they work, and you have to kind
Speaker 1: of keep in the depth of the financial crisis. It
Speaker 1: kind of had to keep reminding people. You know, markets
Speaker 1: are where buyers and sellers come together and in a
Speaker 1: voluntary transaction, both sides of a trade have to feel
Speaker 1: like they have a good they got a deal, or
Speaker 1: they don't trade. They don't trade. So you know, there's
Speaker 1: a lot of trading volume activity and a lot of
Speaker 1: well known investors investing, and it's just you know, one
Speaker 1: of those UM. It was comfortable those markets were functioning
Speaker 1: the way they ought to function. Sometimes they go up,
Speaker 1: sometimes they go down. Gene, how did David's gift impact
Speaker 1: the Graduate School of Business? Huh, it was. It was
Speaker 1: a big lot of cash flow that was not there beforehand,
Speaker 1: so it gave rise to lots of research centers. I
Speaker 1: think you made everybody feel as if the future is
Speaker 1: more or less assured. UM and the university also got
Speaker 1: a pretty good take out of itself, as they always do,
Speaker 1: so David, you tell a charming story about sitting with
Speaker 1: the dean and you It wasn't your intention for this
Speaker 1: originally to be a naming gift. They seem to have
Speaker 1: brought that up to you. Can you you right know?
Speaker 1: I said I wanted for the reasons I outlined, I
Speaker 1: wanted to make a gift a big part of what
Speaker 1: I have, um, and so this is what I want
Speaker 1: to do. And the Dean, Ted Snyder at the time,
Speaker 1: said we were looking to have a naming gift from
Speaker 1: the business School. This is a lot better deal than
Speaker 1: that what we're looking for, So we'll name the school
Speaker 1: after you. Okay, whatever you know. So since then the
Speaker 1: school has continued to grow in in both reputation and
Speaker 1: number of students and the offerings here. Um. And then
Speaker 1: fast forward, uh, five years after that, Jane gets a
Speaker 1: phone call from Sweden. Let's talk a little bit about that.
Speaker 1: What was your experience like, Uh, did the phone call
Speaker 1: manage to reach you? Tell us? Tell us what that
Speaker 1: was like? Well, they think they call it early the
Speaker 1: morning Stockholm time, which is really really in the in here.
Speaker 1: It thinks about five or six o'clock. So I don't know.
Speaker 1: You never expect to get it, because a lot of
Speaker 1: people could qualify to to get it when you get it. Somehow,
Speaker 1: Pete they the people he somehow had I guess or whatever.
Speaker 1: I don't know why, because they were newspaper people at
Speaker 1: my door ten minutes later after after the call and
Speaker 1: they wanted to come in my house. I said, no way,
Speaker 1: you're class. Well, I had a class that morning, and
Speaker 1: you don't. You don't get a special dispensation when you could.
Speaker 1: But I had never missed the class in all the
Speaker 1: years I've been teaching in fifty years. Yeah, I wasn't
Speaker 1: gonna start now, so when I wasn't gonna let anybody
Speaker 1: in because the kids in the class were paying a
Speaker 1: lot of money to take that course, So no way
Speaker 1: I wanted people from the outside disturbing it. So, David,
Speaker 1: you ended up going to Stockholme with Jeane. What what
Speaker 1: was that experience like? Um, well, of course, being Chicago trained,
Speaker 1: I've been to the ceremony before with when when Myron
Speaker 1: and Bob Martin got there Nobel, So you know it's
Speaker 1: you're kind of used to this of you so third
Speaker 1: times of charm. Yeah, so the uh so, I I
Speaker 1: said to Jane, give me a night, uh to organize
Speaker 1: something special. So I talked to Abba has a museum
Speaker 1: in Stockholm that they just opened, and I talked them
Speaker 1: into running me out the museum for the evening. So Jeane,
Speaker 1: you know, he has four kids and that time about
Speaker 1: eight grandkids and they're all u big music fans and
Speaker 1: so the Abbe Museum has a lot of u um
Speaker 1: um things you can do to have fun and um.
Speaker 1: One of them is a big stage with a scrim
Speaker 1: on it and with four Abba musicians singing with a
Speaker 1: microphone right in the middle, and so you it looks
Speaker 1: like you're singing with them. And so I looked, so
Speaker 1: this went on. They were the kids, The kids went wild.
Speaker 1: I looked over Jeane like and Sally, and I could
Speaker 1: see that they were they were having fun. So it
Speaker 1: made it special for me. So the whole thing some
Speaker 1: people have described as surreal. What was your the day
Speaker 1: of the day after So they had a big event
Speaker 1: here of the school, really big event, I mean news
Speaker 1: and everything. The circles around the building, we're all full
Speaker 1: of students um. And the next day the Nobel people
Speaker 1: have a camera committee there following me across the Harper Center,
Speaker 1: the big hum in the middle, and students are working
Speaker 1: on on the sides, and we worked down the middle.
Speaker 1: Nobody looks up. So we get to the other side,
Speaker 1: and the television guy says, nobody looked up when I said,
Speaker 1: this is the University of Chicago. If they had to
Speaker 1: look up every time I nobil fries when I walked right,
Speaker 1: get nothing done. And and to show you how true
Speaker 1: that is, David Booth and Gene and I get an
Speaker 1: elevator on four to come down here, and a student
Speaker 1: gets in wearing headphones, turns around, doesn't say a word
Speaker 1: to either of you, and the four of us wrote
Speaker 1: down in silence. He was completely oblivious to who was
Speaker 1: in the elevator with him. So I'm always fascinated by
Speaker 1: that sort of stuff. So so let's let's talk a
Speaker 1: little bit about um some other things that you've written about,
Speaker 1: and the two of you have applied. One of the
Speaker 1: quotes of Professor Farmers that I enjoy is quote, why
Speaker 1: is anyone even reading Wall Street Research? Unquote? So I
Speaker 1: have to ask you, why do people read Wall Street Research?
Speaker 1: I don't know. It's it's businessman's pornography, basically business based pornography.
Speaker 1: It's not the real thing. It's not the real thing. Okay. Um,
Speaker 1: so let's talk a little bit about value. I'm gonna
Speaker 1: try and realist. Let's talk about value and growth. Value
Speaker 1: has a tendency to go through these longer periods where
Speaker 1: growth is beating it. And over the past decade it's
Speaker 1: been if you weren't in big cap us growth, um,
Speaker 1: you were underperforming. Everything has been um the SMP five hundred.
Speaker 1: When we look at emerging markets, we look at small cap,
Speaker 1: we look at value. Heaven forbid, you're an emerging market
Speaker 1: small cap value. It's been terrible. What sort of lessons
Speaker 1: should investors take from this extended period of growth growth
Speaker 1: beating value? Well, the question they want to ask is
Speaker 1: as value dead? Okay, let's Kennan. I actually were reading
Speaker 1: a paper on this at the moment. But the bottom
Speaker 1: line is there's so much volatility in these premiums that
Speaker 1: you can't tell if the premium is teamed or not.
Speaker 1: It may have changed, it may not. You just can't
Speaker 1: tell us. Let's see a wholl within the range of
Speaker 1: chance experience that the poor return experiences well within the
Speaker 1: range of chance over the time that's that it's occurred.
Speaker 1: So you really can't say anything. So so there have
Speaker 1: been other periods of time where value is done poorly.
Speaker 1: I remember hearing in this value investor was washed up,
Speaker 1: this guy named Warren Buffett. He doesn't know what he's doing.
Speaker 1: And typically when you hear that, it's usually at the ends,
Speaker 1: towards the end of that period of underperformance. Um, you're
Speaker 1: suggesting we won't know for some period of time if
Speaker 1: the value premium is gone or if it's just a
Speaker 1: regular cyclical underperformance. I don't think there are real cycles
Speaker 1: to it. I think it's just kind of random that
Speaker 1: go through good in bed periods, and you know, you
Speaker 1: can't recognize them except that from the fact you can't
Speaker 1: really predict them. Uh, we've we've tried tests, we've tried
Speaker 1: predictive tests, and they have marginal nothing worth even focusing
Speaker 1: focusing on. So basically is stuck with the volatility of
Speaker 1: equity returns. They don't allow to say very much about
Speaker 1: what's happened to expected returns going forward. And and David,
Speaker 1: what we've seen a huge proliferation of various factor funds,
Speaker 1: not just the three factor, of the five factor, of
Speaker 1: the seven factor model. They're now hundreds identified. What does
Speaker 1: this mean for investors? Has has the proliferation of all
Speaker 1: these new factors been good for investors or is it
Speaker 1: a non event? Well, I mean I think on balance
Speaker 1: um UM has been overstated and whatever whatever it is
Speaker 1: the you know, I think UM researchers identified, you know,
Speaker 1: factors that seem to explain differences in average returns. But
Speaker 1: there can't be hundreds of factor I mean, they got it,
Speaker 1: They're probably at the end of the day, they're probably
Speaker 1: a few factors. Uh and Gene and ken. One of
Speaker 1: the things they try to do is instead of trying
Speaker 1: to identify more and more factors, just take the researchers
Speaker 1: out there and can shrink it down to simpler, you know,
Speaker 1: more factors that matter, factors that matter, well, lots of
Speaker 1: lots of these things that just different manifestations of the
Speaker 1: same thing. Give us an example. So value can be
Speaker 1: very measured in many different ways. I can use the
Speaker 1: book to market ratio you need to catch full at
Speaker 1: the price. They can use lots of different variables, so
Speaker 1: I identify what is basically this same thing. Uh. And
Speaker 1: there are thousands of finance professors out there who all
Speaker 1: want to get ten here um they have the publish
Speaker 1: to do that. So they're all just kind of searching
Speaker 1: through the data finding stuff that maybe there only on
Speaker 1: a chance basis that won't be there out of sample.
Speaker 1: So there's lots of work being done and it remains
Speaker 1: to be done on what we call robust this. How
Speaker 1: does this stand up when I have new data? So
Speaker 1: we we've always been into robustness in the sense that
Speaker 1: when we found it in the ninety two paper, we
Speaker 1: went back and collected the data back to that data
Speaker 1: started in the sixty three We then went back and
Speaker 1: collected the data back to to look out a sample,
Speaker 1: and then we looked at the international leader to look
Speaker 1: at a sample, and so pretty much the same thing everywhere. Um,
Speaker 1: now we've had a bad period of this, but relative
Speaker 1: to all of that, it doesn't look that doesn't look
Speaker 1: that serious. And I have to ask you a question
Speaker 1: about behavioral economics. Um, we're here in Chicago, where we
Speaker 1: could short of call at the birthplace of behavioral finance.
Speaker 1: What do you think about that area and what's your
Speaker 1: involvement with it. Well, my good friend Richard Taylor, who
Speaker 1: is the king of the behavioral finance people and another
Speaker 1: Nobel law that no one I teach them and say
Speaker 1: I'm the most important person in behavioral finance. Are because
Speaker 1: most of the behavioral finance is just the criticism of
Speaker 1: official markets. So without me, what have they got? And
Speaker 1: and you and and Dick Taylor are golf parts are
Speaker 1: so do you argue across eighteen holes or you know?
Speaker 1: The reality is we agree on the facts, we disagree
Speaker 1: on the interpretation um For example, he thinks the value
Speaker 1: premium is the result of people's misperceptions of what accounting
Speaker 1: information and other information looks like. That it's all based
Speaker 1: on misinterpretation of information. Now, if you believe that, then
Speaker 1: you think it should go away, because it's possible to
Speaker 1: teach people that they have these these biases are professional
Speaker 1: managers should be able to get past them, but they
Speaker 1: still have emotional reactions that sometimes they can't get that.
Speaker 1: That's the thing about behavior lea going elements. What their
Speaker 1: studies seem to show is people don't learn from experience.
Speaker 1: If you're stupidly, repeatedly stupid, you don't learn. And most
Speaker 1: people are stupid. I mean, that's that's the provisation. Someone
Speaker 1: has to be on the wrong side of that trade.
Speaker 1: You said it's a zero sum, right, So so you
Speaker 1: guys agree more than you than you might realize the fact,
Speaker 1: but not the interpretation. But there is no behavioral finance.
Speaker 1: Wait say that again. There is no behavioral finance. There's
Speaker 1: no it's all just a criticism of official markets really
Speaker 1: with no evidence. Is dick here? I think he would
Speaker 1: disagree with that. So that's not so sure because when
Speaker 1: when I put the challenge to him twenty years ago,
Speaker 1: I wrote a paper that said, Okay, now you've been
Speaker 1: criticizing us for the last whatever, it's time for you
Speaker 1: to come up with a theory that we can actually
Speaker 1: test and see if it works or not. And what
Speaker 1: was response? We're still waiting. Actually you presented that paper
Speaker 1: at a at U c L A at Gene walks
Speaker 1: in and says, all the way over, I was thinking
Speaker 1: about breaking my leg or something. So I can catch
Speaker 1: some sympathy here. And to be fair, when Taylor won
Speaker 1: the Nobel Prize, he admitted his plan was to spend
Speaker 1: the money as irrationally as possible. So even he even
Speaker 1: he agrees with you on that. UM, I wanted to
Speaker 1: ask about, uh, some of your comments on Beta. You
Speaker 1: said beta is dead. Do you still believe beta is dead. Well,
Speaker 1: the evidence basically says that the relation between averaging tune
Speaker 1: and beta it's too flat to be explained by the
Speaker 1: capitalistic pricing model. That's a real shame because that model
Speaker 1: is so simple. Um, if it were true, it would
Speaker 1: really be like life, a lot simpler in many ways.
Speaker 1: But it just has never worked very well. All right,
Speaker 1: So what we're gonna do now? I have more, many
Speaker 1: more questions. But this thing is lighting up, and we
Speaker 1: have questions from the audience. So I'm gonna I'm gonna
Speaker 1: ask a few from this and see, uh see where
Speaker 1: we go from here. Um, let's talk about your views
Speaker 1: on the future of active management. Where do you see
Speaker 1: the industry going in ten years? And this is for
Speaker 1: both of you, active management active management, Well, it's been
Speaker 1: shrinking really slowly. So when Kenn did his American Finance
Speaker 1: Association Presidents did his president speech, what he's what he
Speaker 1: said was one of the things he said was we've
Speaker 1: gone from zero to and I think it was about
Speaker 1: forty years at that time, maybe a little more, and
Speaker 1: since then we've gone to like I think it's up
Speaker 1: to thirty or forty. Now that's passively man. So that's
Speaker 1: permeated very slowly through the profess Yeah, what where it
Speaker 1: will go from me? Or we'll see and and some
Speaker 1: people have made the argument you have to separate active
Speaker 1: from expensive locost active is attractive. Obviously this is a
Speaker 1: key tenant at dimensional funds. How much of the move
Speaker 1: away from active has really been away from expensive I
Speaker 1: think a big part of it. And in fact that
Speaker 1: a lot of the move to indexing is through e
Speaker 1: t f s and a lot of the a lot
Speaker 1: of that is just a new version of active management.
Speaker 1: Um or managers say, look, I don't think I can
Speaker 1: pick individual stocks, but I can tell them sectors of
Speaker 1: the market, So let me buy buy E t f s.
Speaker 1: So it's really kind of confusing as to uh, you
Speaker 1: know what the trend has been in active management. But
Speaker 1: I I think active managers are resourceful and always compe
Speaker 1: with new ideas of trying to entice people with magic
Speaker 1: with magic. So the pushback against um efficient market we
Speaker 1: always see this argument. Berkshire Hathaway had strong returns in
Speaker 1: its early years as the result of Warren Buffett's skill
Speaker 1: and security selection. How given Professor Farmer's comments and market efficiency,
Speaker 1: how can this early success be explained. So you take
Speaker 1: you have probably a hundred thousand people picking stocks right
Speaker 1: right over a period of time, then you pick out
Speaker 1: the one who does the best and impute that to skill.
Speaker 1: The problem is, if I have a hundred thousand people picking,
Speaker 1: what's the probability that one of them will look extraordinary?
Speaker 1: Purely on a chance basis, You'll you'll always have some
Speaker 1: outliers that look, you'll get a big old layer in
Speaker 1: that in that experiment. But that's the way that the
Speaker 1: newspaper accounts run. They take after, they look after the fact,
Speaker 1: and they pick out the winners. So every year, for example,
Speaker 1: they pick out the best performers of the last five
Speaker 1: ten years, and you look at the following period. No, no,
Speaker 1: no correlation between past the tay and and in fact
Speaker 1: we've seen the morning store manager of the year tends
Speaker 1: to significantly out before underperform in the decade once they
Speaker 1: win manager of the decade. But that would surprise me too,
Speaker 1: I would think they'd just be random. No, no persistency,
Speaker 1: In fact, negative persistency. We've had the sas in that subductative.
Speaker 1: How much persistence is there in performance? The answer is
Speaker 1: basically zero. Zero, and I have to the best predictor
Speaker 1: of future performance is FeAs and expenses that you know,
Speaker 1: it's ironic that came out of morning Star, that did
Speaker 1: a big study and they sell their morning Star rating
Speaker 1: and it turned out ignore everything else, just picked the
Speaker 1: cheapest fun pretty pretty astonishing, right, Well, they come up.
Speaker 1: I think they came out and said came out and
Speaker 1: said there's no relation between between future performance and the
Speaker 1: way we ran things. There's another question if it comes
Speaker 1: out to that, so so um. One one of the
Speaker 1: questions that is asked by the room. If the mark
Speaker 1: it becomes truly efficient one day, what happens to all
Speaker 1: the management farms? That question assumes that markets aren't truly
Speaker 1: efficient today. How do you respond to that? What's the evidence? No,
Speaker 1: I mean I don't think it's I think all of
Speaker 1: it is wrong. So it's different. There will still be
Speaker 1: a management business, you just will have very little active
Speaker 1: in it, so that you have to have some active
Speaker 1: investors to make price prices efficient. The problem is you
Speaker 1: don't expect them to be professional managers because the logic
Speaker 1: of being a good investor is that you should get
Speaker 1: their returns if you don't hand them back to other people,
Speaker 1: you take them back and higher fees. You know, that's
Speaker 1: the human capital activity is picking stocks or whatever investment management.
Speaker 1: So if you have real skill, you should be charging,
Speaker 1: you should go all the retention should go to you,
Speaker 1: Naz your clients. And and this is for both of you.
Speaker 1: What sort of opportunity for out performance do you see
Speaker 1: in private markets given that in for nation, in that
Speaker 1: space is so much more opaque than in public markets.
Speaker 1: The problem is there are lots of good people studying that,
Speaker 1: but they hamstrung by the lack of good data on
Speaker 1: people who live in people who die the fund. You know,
Speaker 1: the managers who live in what self reported. It's not
Speaker 1: like so you get you get it. You get a
Speaker 1: very kind of biased set of data on that. But
Speaker 1: you know, it's kind of depends on what into that
Speaker 1: business you go to. If you're looking at managers who
Speaker 1: actually run the companies that they buy, they may actually
Speaker 1: be able to add value, but it's management value. It's
Speaker 1: not stuck picking value. If they you're picking companies that
Speaker 1: have a good idea but a fully run probably you
Speaker 1: can have a lot of value added in that case.
Speaker 1: But again, if you go to the guy's doing it.
Speaker 1: That's the that's the downside of it. They're the ones
Speaker 1: who take all the profits out of it. Well, that's
Speaker 1: that's the logic of human capital, right right. And we
Speaker 1: didn't get to a question before I have to ask
Speaker 1: about bubbles. And this goes back to be okay, So
Speaker 1: I don't know how to bleep out the word bubbles.
Speaker 1: But what do you mean by okay? So folks like
Speaker 1: Failor and Chiller would describe a bubble as a period
Speaker 1: of excessive market enthusiasm that leads prices to far outstrip
Speaker 1: their fundamental valuation. What's the testable proposition here, though, I
Speaker 1: don't know, can you Well, the way I interpret it
Speaker 1: is you must be able to predict the end of it. Bubbles,
Speaker 1: it would be something with a predictable ending. So it
Speaker 1: has to be measurable by a predefined set of parameters,
Speaker 1: and you should be able to identify the end of it.
Speaker 1: So if we were to say every time that fails
Speaker 1: the test, I mean, I mean you can't. People can't
Speaker 1: identify bubbles that way until after the fact. After the fact,
Speaker 1: it's it's easy. But this is famous theory around about
Speaker 1: you know, the early origins of market efficiency, which home
Speaker 1: work working, went into the faculty lounge at Stanford. He
Speaker 1: was agriculturally uh prices, and he showed them chats of
Speaker 1: of of prices, and he said, these were chats of
Speaker 1: commodity prices, and he wanted to not see if they
Speaker 1: could identify bubbles and the prices, and every to a man,
Speaker 1: they all could. There were no women. To a man,
Speaker 1: they all could. The problem was what he was showing
Speaker 1: them was accumulative random numbers, as those just generated uh stuff.
Speaker 1: So that the message there's people see bubbles where there
Speaker 1: are now h. So here's a here's a really broad question.
Speaker 1: Given the societal angst of people attacking the value of
Speaker 1: a business education, what is your belief in the value
Speaker 1: of this education booth and how should we communicate this
Speaker 1: better to society? Well, I think it's it's incredibly valuable
Speaker 1: to society, um, because if we are going to make
Speaker 1: lives better for people, part of the answer has to
Speaker 1: come from better and safer financial products. And just that's
Speaker 1: the reality. And that's been the history. I mean, it's
Speaker 1: like I say, I look back on my career and
Speaker 1: uh working with Gene and you know, we've been part
Speaker 1: of the movement towards lower fees and better controls. So
Speaker 1: I can find it irritating when somebody says, really, the
Speaker 1: only advanced the last fifty years has been the A
Speaker 1: T M. You know. Uh it's uh qu yeah, live,
Speaker 1: we've live based all this work live, We've improved lives. Uh,
Speaker 1: and there and other people with sharing the I s
Speaker 1: we're not the only one. But I mean, I don't
Speaker 1: think it gets much better than that. And uh so
Speaker 1: I would hate to have people, um not to get
Speaker 1: into business or particularly financial services. You can have a
Speaker 1: good career in financial services and at the end of
Speaker 1: it you can look back on it and take pride
Speaker 1: in what you've accomplished. It's as simple as that. So
Speaker 1: so that leads to the next question. What keeps both
Speaker 1: of you working? Neither of you have to work, Why
Speaker 1: do both of you still get up and go to
Speaker 1: the office each day. It's fun, it's fun challenging, it's important.
Speaker 1: I mean, it's exciting to see the retired people living
Speaker 1: better as a result of these ideas, or better able
Speaker 1: to send their kids to colleagues or whatever. I mean,
Speaker 1: these are These are not you know, ideas that have
Speaker 1: no importance. I mean, these are you know that's you
Speaker 1: can get behind that kind of idea. You get a
Speaker 1: lot of satisfaction out of coming up with stuff people
Speaker 1: haven't seen before. I have been recognized, and we have
Speaker 1: time for one last question, and I'm going to go
Speaker 1: with something about, um, what do you think the future
Speaker 1: of Chicago Booth looks like? What is next in store
Speaker 1: for the school? And this is for both of you. Well,
Speaker 1: I can tell you that. So I've been on the
Speaker 1: faculty since nineteen sixty three, students since nineteen sixty. In
Speaker 1: the sixties, basically there was a pretty good economics group.
Speaker 1: There was a developing finance group, and that was it.
Speaker 1: I mean, there's the school's junk. Well, but look that
Speaker 1: was not unique to us. So I remember when I
Speaker 1: was recruiting as a student, UM in college not from here.
Speaker 1: The people recruiting said, why do you want to go
Speaker 1: to a business school? They don't teach you anything, we
Speaker 1: don't pay anything for what they what they do. And
Speaker 1: that was too at that time. I think, and what's
Speaker 1: happened through time is not just finance, but every other
Speaker 1: area has been academically made more become more successful. So marketing, accounting,
Speaker 1: statistics was always pretty good, but it was never part
Speaker 1: of of of business schools. So now we have really
Speaker 1: front rank faculty and every single discipline. The school is
Speaker 1: so high, high level, competitive on the faculty side, on
Speaker 1: the research side. But it's just there's no relation to
Speaker 1: what it was fifty years ago. It's a totally different
Speaker 1: professional place. On the students side, I think there was
Speaker 1: a challenge, and I've been complaining about it for a
Speaker 1: long time. Students don't work as hard as they did
Speaker 1: in the old days. I've heard this is a very
Speaker 1: very difficult school to work your way through. Well, but
Speaker 1: the reality is we keep track of hours work per
Speaker 1: per per class out of class. When I started teaching,
Speaker 1: everybody was around fifteen per class. That number has dropped
Speaker 1: dramatically through time. I bet this room would disagree with that. No, no, no, no,
Speaker 1: we have the statistics. It's not it's not it's not
Speaker 1: a guess. And and David, what do you see as
Speaker 1: the next decade holding for the Booth School? Well, I'm
Speaker 1: not really in a position there. I mean, wow, I
Speaker 1: just gave him some money. I figured they can figure
Speaker 1: that stuff out. If I had to figure that out
Speaker 1: as well, I mean that would be a real hero.
Speaker 1: You know, I I'm just um, I'm not. I don't
Speaker 1: know where it's gonna go, but wherever it goes is
Speaker 1: going to be important. And and that's the perfect spot
Speaker 1: to end. Ladies and gentlemen, please say thank you to
Speaker 1: Professor Gene Fama and David Booth. That's my conversation with
Speaker 1: David Booth and Gene Fama. If you enjoyed that, we'll
Speaker 1: go to Apple iTunes, look up an inch or down
Speaker 1: an inch, and you could see any of the nearly
Speaker 1: three d conversations we've had over the past five years.
Speaker 1: We love your comments, feedback and suggestions right to us
Speaker 1: at m IB podcast at bloom Berg dot net. Be
Speaker 1: sure and give us a review at Apple iTunes. Sign
Speaker 1: up from my daily reads at rit Halts dot com,
Speaker 1: follow me on Twitter at rit Halts. I would be
Speaker 1: remiss if I did not thank the crack staff that
Speaker 1: helps us put these conversations together this week and this
Speaker 1: week was an unusual expedition. We all had to slip
Speaker 1: out to Chicago. The folks at the University of Chicago
Speaker 1: were great. They did a really great job in setting
Speaker 1: things up so that we could both videotape and audio
Speaker 1: record this. Michael Boyle is my producer, and he was
Speaker 1: on hand there along with a few other folks from
Speaker 1: Bloomberg that really made everything go very smoothly. Charlie Volmer
Speaker 1: is my audio engineer who helped cut this monstrosity together.
Speaker 1: Atica val Broun is our project manager. Michael Batnick is
Speaker 1: my head of research. I'm Barry rit Halts. You've been
Speaker 1: listening to Masters in Business on Bloomberg Radio.