WEBVTT - David Booth 0:00:02.560 --> 0:00:04.990 One of the most successful money managers the last 40 0:00:04.990 --> 0:00:08.610 years is David Booth. David Booth built Dimensional Fund Advisors 0:00:08.650 --> 0:00:11.270 into one of the world's most successful money management companies, 0:00:11.610 --> 0:00:14.170 now managing more than a trillion dollars. He's best known 0:00:14.190 --> 0:00:16.090 to some people as the person who gave the gift 0:00:16.410 --> 0:00:19.060 to rename the University of Chicago School of Business the 0:00:19.079 --> 0:00:21.280 Booth School of Business. I had a chance to sit 0:00:21.320 --> 0:00:23.200 down with David recently to talk about his new book, 0:00:23.280 --> 0:00:26.820 Stay Calm, which contains his investment philosophy and his secrets 0:00:26.860 --> 0:00:29.420 of life. Well, David, when you started this in 1981 0:00:29.420 --> 0:00:34.390 out of a brownstone in Brooklyn, in your wildest imagination, 0:00:34.729 --> 0:00:36.729 did you think this was going to be a trillion 0:00:36.750 --> 0:00:38.290 dollar asset management company? 0:00:38.990 --> 0:00:40.930 No, that was way beyond what we were thinking. We 0:00:40.950 --> 0:00:44.990 were just trying to survive. The firm was built around 0:00:45.010 --> 0:00:49.240 the idea that finance had developed into a science in 0:00:49.260 --> 0:00:51.500 the 60s and 70s. And we wanted to figure out 0:00:51.520 --> 0:00:55.160 how to apply the science. Because these ideas, if you 0:00:55.200 --> 0:00:56.920 don't apply the ideas, they aren't very useful. 0:00:57.680 --> 0:01:00.840 So your role in the beginning was the was everything. 0:01:00.860 --> 0:01:02.650 You were helping to raise the money, you came up 0:01:02.660 --> 0:01:05.930 with the idea. But in the end, over the last 0:01:05.930 --> 0:01:09.069 40 plus years or so, your role has been to 0:01:09.090 --> 0:01:10.709 be what, the CEO principally? 0:01:11.209 --> 0:01:14.530 I've been CEO. Now I'm just chairman. We have two 0:01:15.910 --> 0:01:19.069 co-CEOs now really running the firm day to day. So 0:01:19.150 --> 0:01:21.770 I kind of bring some institutional memory and meet with 0:01:21.790 --> 0:01:23.670 them regularly, but they really run it. 0:01:23.970 --> 0:01:25.660 Dimensional, where did that name come from? 0:01:25.680 --> 0:01:29.420 The idea that started the firm was what we called 0:01:29.440 --> 0:01:35.480 a small cap fund. Back in 1981, if you look 0:01:35.500 --> 0:01:38.800 at big institutional investors, they weren't holding the stocks of 0:01:38.860 --> 0:01:42.699 small companies at all. And so we said, aha, we'll 0:01:42.920 --> 0:01:46.140 develop a small cap fund, which back in those days, 0:01:46.160 --> 0:01:49.140 there were about, say, 4,000. The smallest 3,000 is what 0:01:49.600 --> 0:01:53.580 we mean by small cap. And collectively, they represent about 10% 0:01:53.580 --> 0:01:54.940 of the universe, 5% to 10%. And we said, look, 0:01:59.150 --> 0:02:01.690 It seems sensible if you're forming a stock portfolio, you 0:02:01.730 --> 0:02:05.460 would have stocks of large companies and small. And in 0:02:05.460 --> 0:02:08.579 45 years, everybody's nodded, yeah, that makes sense. Say, well, 0:02:08.600 --> 0:02:10.800 you're not holding the small. I go, well, that's true too. 0:02:11.360 --> 0:02:14.350 So what we'll do is we'll give you access to small. 0:02:15.090 --> 0:02:18.169 So in 1981, if somebody had said, David, you have 0:02:18.210 --> 0:02:19.730 a nice idea, but I'm not going to give you 0:02:19.750 --> 0:02:24.210 that much of my money, but I'll give you $ 1, 000. 0:02:22.210 --> 0:02:27.280 And they kept it with you since 1981. What would 0:02:27.300 --> 0:02:28.840 that $ 1, 000 be worth today? 0:02:29.100 --> 0:02:30.840 Well, if you didn't pay taxes, it'd be worth about 0:02:31.100 --> 0:02:33.220 over $ 140, 000. 0:02:32.100 --> 0:02:34.880 So it's gone up 140 times. 0:02:35.040 --> 0:02:35.280 Yeah. 0:02:35.460 --> 0:02:37.300 They never had to pay taxes. They kept it in. 0:02:37.380 --> 0:02:38.160 Yeah, yeah. 0:02:38.180 --> 0:02:39.060 It's up 140 times. Yeah. 0:02:39.520 --> 0:02:42.690 Amazing. That's the magic of compounding. You know, that's one 0:02:42.710 --> 0:02:46.190 of the big lessons in finance, of course, compounding. And 0:02:47.389 --> 0:02:49.389 you read about it theoretically, but when it's your money, 0:02:49.430 --> 0:02:52.130 you go, holy cow, that's real money. 0:02:52.790 --> 0:02:55.970 What Dimensional's premise was, as I understand it, maybe it's changed, 0:02:56.030 --> 0:02:59.710 is that If you buy an index of stocks and 0:02:59.750 --> 0:03:03.709 particularly smaller companies, not the bigger ones, if you hold 0:03:03.770 --> 0:03:06.310 that for quite some time, you're going to probably beat 0:03:06.370 --> 0:03:08.410 the market averages or at least you'll do very well. 0:03:08.470 --> 0:03:08.929 Is that right? 0:03:09.270 --> 0:03:14.180 That's right. And actually, the name of the firm, Dimensional, 0:03:14.280 --> 0:03:16.740 came up this idea that we thought of small cap 0:03:16.760 --> 0:03:19.720 stocks as a separate dimension of returns. 0:03:20.100 --> 0:03:24.669 So David, when people who are smaller investors want to traditionally, 0:03:24.690 --> 0:03:26.690 let's say 10, 20 years ago, they wanted to invest 0:03:26.750 --> 0:03:29.590 in dimensional. Could they come in if they were very small? 0:03:30.050 --> 0:03:32.090 And today, if they want to come in, do they 0:03:32.130 --> 0:03:34.310 come in through an ETF if they're a very small investor? 0:03:34.530 --> 0:03:37.390 They would come in through the ETF. We've never developed 0:03:38.310 --> 0:03:42.850 a marketing program for the small investor. We're there, but 0:03:43.570 --> 0:03:46.910 we don't have toll-free telephone lines for people to call in. 0:03:47.510 --> 0:03:51.110 What's the difference between a traditional index fund and a 0:03:51.170 --> 0:03:52.030 dimensional fund? 0:03:52.530 --> 0:03:55.630 A traditional index fund is obsessed with one thing, tracking 0:03:55.690 --> 0:04:02.270 the benchmark index. At Dimensional, we say, look, flexibility has 0:04:02.350 --> 0:04:06.230 economic value. So instead of slavishly trying to have zero 0:04:06.290 --> 0:04:09.410 tracking error relative to an index, we use a little 0:04:09.440 --> 0:04:13.020 bit of human judgment in there, particularly in trading and 0:04:13.060 --> 0:04:17.460 the way we structure portfolios. So we're willing to deviate 0:04:17.480 --> 0:04:20.340 a little bit from straight index tracking. 0:04:21.089 --> 0:04:23.070 Now, you've written a book, and this is a book 0:04:23.270 --> 0:04:28.130 called Stay Calm. And that is your investment philosophy. Stay calm. 0:04:28.180 --> 0:04:30.539 You don't get nervous about where the market's going up 0:04:30.580 --> 0:04:32.260 and the gyrations of the market and so forth. 0:04:32.560 --> 0:04:35.279 I'm always curious, and I always have a certain level 0:04:35.300 --> 0:04:38.919 of anxiety. And that's when I go back to first principles, 0:04:38.960 --> 0:04:42.730 the things we learned in school. Control what you can 0:04:42.760 --> 0:04:46.630 control is the first. And we can't control the markets. 0:04:46.950 --> 0:04:52.810 Investing is complex and uncertain. So is life. So people 0:04:52.830 --> 0:04:56.029 have gotten where they are by learning how to manage uncertainty, 0:04:56.589 --> 0:05:00.710 which largely means predict what you can, but what you 0:05:00.750 --> 0:05:04.210 can't predict, control. You can control that to a considerable degree. 0:05:04.620 --> 0:05:07.559 For example, in investing, you can't predict the stock market. 0:05:08.540 --> 0:05:10.880 You can control how much risk you take, how much 0:05:10.900 --> 0:05:14.700 you have, say, in stocks versus money market funds, that 0:05:14.740 --> 0:05:15.159 sort of thing. 0:05:16.010 --> 0:05:19.250 So when the markets are going down and plummeting hundreds 0:05:19.290 --> 0:05:21.250 of points, you don't panic and you don't get upset 0:05:21.270 --> 0:05:21.890 when that happens? 0:05:22.250 --> 0:05:25.000 No, you take the most recent big downturn in 2020 0:05:25.000 --> 0:05:29.820 when the pandemic had just hit and markets down 30%, 0:05:29.820 --> 0:05:32.800 people are stressed out. They go, what's going to happen? 0:05:32.820 --> 0:05:34.680 I go, I don't know what's going to happen. Here's 0:05:34.720 --> 0:05:36.740 what I believe. And people aren't just going to sit 0:05:36.779 --> 0:05:38.520 there and take it. They're going to figure out how 0:05:38.550 --> 0:05:41.130 to get back on track. And they're going to innovate. 0:05:41.170 --> 0:05:42.610 Their firms are going to innovate. They're going to be 0:05:42.630 --> 0:05:45.250 doing new and different things, you know, we probably will 0:05:45.270 --> 0:05:47.490 get back on track faster than you might think, which 0:05:47.550 --> 0:05:51.510 is what happened. The recession was only like one quarter long. 0:05:51.910 --> 0:05:54.970 I mean, that's human ingenuity. In some sense, that's really 0:05:54.990 --> 0:05:58.150 what I'm preaching now. Human ingenuity is what will bail 0:05:58.190 --> 0:05:58.540 us out. 0:05:59.070 --> 0:06:02.380 What is the principal mistake that the average investor makes? 0:06:02.800 --> 0:06:05.060 Well, the principal mistake is they think they can predict 0:06:05.100 --> 0:06:06.779 things or they think they have to try to predict 0:06:06.820 --> 0:06:09.840 things in order to be successful. They have to figure 0:06:09.860 --> 0:06:11.980 out which stocks to buy, when to get in the market, 0:06:12.000 --> 0:06:15.120 when to get out. And the evidence is none of 0:06:15.160 --> 0:06:16.359 that kind of makes sense. 0:06:16.820 --> 0:06:19.520 Now, this book, Stay Calm, how long did it take 0:06:19.540 --> 0:06:20.360 you to write this book? 0:06:21.100 --> 0:06:25.180 It was a couple of years. All of this dealing 0:06:25.200 --> 0:06:29.950 with uncertainty, how to manage uncertainty in investing, the parallels 0:06:30.010 --> 0:06:33.490 to personal life was so overwhelming. So why not talk 0:06:33.529 --> 0:06:39.910 about life experiences and dealing with uncertainty? And once I 0:06:39.930 --> 0:06:42.000 went down that path, Then all of a sudden I 0:06:42.040 --> 0:06:45.860 thought we had a message that could appeal to everybody. 0:06:46.460 --> 0:06:49.109 In fact, one of the things that's been really rewarding 0:06:49.130 --> 0:06:53.310 over the last few weeks as the book is starting 0:06:53.330 --> 0:06:55.930 to get circulating is how many people have come up 0:06:55.950 --> 0:06:57.950 to me and say, I want to give this book 0:06:57.990 --> 0:06:59.950 to my kids. I think that's pretty cool. 0:07:00.550 --> 0:07:02.760 Let's go through your background, how you came to be 0:07:03.580 --> 0:07:06.460 the founder of Dimensional. You grew up in a farm 0:07:06.500 --> 0:07:07.460 in Kansas initially? 0:07:07.839 --> 0:07:10.340 Well, yeah, a farming community. My parents lived in town, 0:07:10.520 --> 0:07:12.179 but my relatives were mainly farmers. 0:07:12.240 --> 0:07:13.720 And what city were you in? 0:07:13.920 --> 0:07:15.640 Well, it was Garnett, Kansas. 0:07:15.860 --> 0:07:17.760 And you have two siblings? 0:07:17.920 --> 0:07:19.220 Yeah, a brother and a sister, yeah. 0:07:19.560 --> 0:07:21.840 When you and your siblings were ready to college, your 0:07:21.900 --> 0:07:25.400 father moved so you'd be closer to the University of Kansas? 0:07:25.560 --> 0:07:27.210 They knew they didn't have enough money to send us 0:07:27.270 --> 0:07:30.390 away to college, so they came up with an elegant solution. 0:07:30.670 --> 0:07:33.390 They just moved to Lawrence, which is where the University 0:07:33.410 --> 0:07:36.210 of Kansas is, and we could live at home and 0:07:36.230 --> 0:07:38.750 go to school. because the big cost of school in 0:07:38.790 --> 0:07:40.580 those days was the cost of living. 0:07:41.060 --> 0:07:44.030 Now, not that many college-age kids really want to live 0:07:44.050 --> 0:07:46.550 at home, but I guess you and your siblings realized 0:07:46.570 --> 0:07:47.750 if you didn't do that, you weren't going to get 0:07:47.770 --> 0:07:48.630 a college education. 0:07:48.690 --> 0:07:50.630 No, we felt blessed that we were able to go 0:07:50.670 --> 0:07:52.250 to school at all. Okay. 0:07:52.730 --> 0:07:54.650 So you went to college, University of Kansas, and what 0:07:54.670 --> 0:07:55.730 did you major in, finance? 0:07:56.910 --> 0:07:59.910 No, my undergraduate was economics and math. In my year 0:07:59.950 --> 0:08:02.690 in graduate school at Kansas, I took a finance course, 0:08:02.770 --> 0:08:05.570 and I go, wow, that's me. And like a lot 0:08:05.610 --> 0:08:08.360 of kids that age, I want to be a professor. 0:08:08.720 --> 0:08:11.860 My finance professor said, well, if you're serious about wanting 0:08:11.880 --> 0:08:14.320 to study finance, you need to go to the University 0:08:14.340 --> 0:08:17.450 of Chicago to the PhD program. So I applied and 0:08:17.990 --> 0:08:18.890 that put me on my way. 0:08:18.950 --> 0:08:21.010 Did you apply to the business school at University of Chicago? 0:08:21.090 --> 0:08:22.010 Graduate School of Business. 0:08:22.330 --> 0:08:24.430 And now that graduate school of business is called the 0:08:24.810 --> 0:08:25.290 Booth School. 0:08:25.350 --> 0:08:26.510 Yeah, Chicago Booth. 0:08:27.640 --> 0:08:29.840 So when you went there, did you think the people 0:08:29.880 --> 0:08:31.540 were smarter than you thought they were going to be 0:08:31.580 --> 0:08:33.120 or not as smart as you thought they were going 0:08:33.140 --> 0:08:34.079 to be? 0:08:34.620 --> 0:08:37.650 I'd never met people. that many incredibly smart people in 0:08:37.690 --> 0:08:40.530 my whole life. Back in those days, none of my 0:08:40.570 --> 0:08:43.130 professors had gotten Nobel Prizes. 0:08:43.650 --> 0:08:45.700 Now, you write in your book that there's a professor 0:08:45.740 --> 0:08:48.660 named Gene Fama, who was a professor at the University 0:08:48.679 --> 0:08:51.420 of Chicago, and he changed your life. Totally. Because he 0:08:51.460 --> 0:08:55.780 came up with a thesis that inspired you to start Dimensional. 0:08:55.820 --> 0:08:56.360 Is that fair? 0:08:56.660 --> 0:08:59.360 First year in the program, first course was Fama's course. 0:08:59.679 --> 0:09:04.250 And basically, he outlined how markets work. he called it 0:09:04.270 --> 0:09:07.590 the efficient market hypothesis, that the market does a really 0:09:07.610 --> 0:09:11.030 good job of setting prices. So what pops out are 0:09:11.050 --> 0:09:14.050 fair prices so people can get a fair return if 0:09:14.070 --> 0:09:16.350 they invest in the broad market. 0:09:17.150 --> 0:09:20.260 Well, before he came up with this theory, the conventional 0:09:20.300 --> 0:09:22.380 wisdom at that time in Wall Street was if you 0:09:22.400 --> 0:09:24.740 hire really smart people that buy good stocks for you 0:09:24.800 --> 0:09:28.540 and stock pickers can beat the market averages, but he 0:09:28.620 --> 0:09:30.819 kind of showed that it's very difficult to beat the market. 0:09:30.880 --> 0:09:31.360 Is that fair? 0:09:31.460 --> 0:09:34.400 That's fair. Before 1960, people didn't really have an idea 0:09:34.960 --> 0:09:38.630 of what the returns on stocks and bonds were. And 0:09:38.650 --> 0:09:41.290 that changed with the development of data at the University 0:09:41.309 --> 0:09:41.890 of Chicago. 0:09:42.309 --> 0:09:44.670 So he showed that overall, if you go into an 0:09:44.750 --> 0:09:47.610 index fund, in effect, you're going to make 9% or 10%, 0:09:47.610 --> 0:09:51.050 maybe 9% overall and 10% of its smaller companies, something 0:09:51.100 --> 0:09:51.390 like that? 0:09:51.620 --> 0:09:53.920 Yeah, something like that. And the point is, it's not 0:09:54.100 --> 0:09:56.819 only a fair return to investors, It's a fair cost 0:09:56.860 --> 0:09:59.500 of capital for the companies issuing stock and bonds. 0:09:59.550 --> 0:10:02.810 All right. So you ultimately were inspired by him. Did 0:10:02.830 --> 0:10:03.969 you actually get to know him? 0:10:04.230 --> 0:10:06.849 Yeah, I know the second year in the program, I 0:10:06.890 --> 0:10:11.120 was his research assistant, which is good and bad news. 0:10:11.140 --> 0:10:14.120 The good news is working side by side with him 0:10:14.179 --> 0:10:17.740 was just an incredible experience. The downside was I realized 0:10:17.760 --> 0:10:20.739 that wasn't what I was cut out to do. That's 0:10:20.780 --> 0:10:22.600 what he was cut out to do. In fact, he 0:10:22.640 --> 0:10:25.079 still works six or seven days a week doing research. 0:10:25.420 --> 0:10:25.980 It's amazing. 0:10:26.300 --> 0:10:28.559 You got an MBA and then you went to work 0:10:28.640 --> 0:10:29.980 for Wells Fargo. Yeah. 0:10:30.880 --> 0:10:33.740 So here I left, you know, Chicago and working, being 0:10:33.760 --> 0:10:36.140 in the PhD program, you'd present papers to the faculty 0:10:36.179 --> 0:10:39.720 and you'd sit in on their papers they were developing. 0:10:39.760 --> 0:10:41.820 So I got to know the faculty really very well. 0:10:42.520 --> 0:10:45.860 And then, um, went to Wells and they were trying 0:10:45.880 --> 0:10:48.500 to apply the ideas. So these ideas are brand new 0:10:48.580 --> 0:10:51.640 ideas are floating around. And I realized nobody's trying to 0:10:51.679 --> 0:10:54.400 apply them. Well, the world's best served if Gene Fama 0:10:54.420 --> 0:10:56.880 does the research and I figure out how to go 0:10:56.920 --> 0:10:57.760 apply the ideas. 0:10:58.280 --> 0:11:00.089 So you did that for a while, but then you 0:11:00.550 --> 0:11:03.010 ultimately decided to leave to go to A.G. Becker. Yeah. 0:11:03.490 --> 0:11:05.850 Well, they shut down the group I was working on. 0:11:07.290 --> 0:11:08.830 So I wanted to join A.G. 0:11:08.870 --> 0:11:09.110 Becker. 0:11:09.130 --> 0:11:12.310 They were a large, at that time, pension consulting firm. 0:11:12.990 --> 0:11:15.730 And I It was a great exposure to really learn 0:11:15.750 --> 0:11:16.630 how the business works. 0:11:17.250 --> 0:11:19.610 And then what propelled you to think that you should 0:11:19.670 --> 0:11:22.929 start your own firm after working for big firms? And 0:11:23.530 --> 0:11:25.510 did you have any money to start the firm with? 0:11:26.090 --> 0:11:27.990 I had something I really wanted to do, which is 0:11:28.250 --> 0:11:31.069 this idea for small stocks. One of my clients at 0:11:31.090 --> 0:11:34.230 the time, it was AT & T. At that time, 0:11:34.590 --> 0:11:37.290 this was before the divestiture. They were the biggest pension 0:11:37.330 --> 0:11:42.370 fund in the world. And they had $ 100 10 managers 0:11:42.429 --> 0:11:44.630 picking stocks, and none of them were investing in the 0:11:44.670 --> 0:11:48.010 stocks of smaller companies. So I said, if you want 0:11:48.030 --> 0:11:50.790 to help yourself out, why don't you create a small 0:11:50.830 --> 0:11:54.290 cap portfolio? And they did, and the idea took off. 0:11:55.030 --> 0:11:58.380 So you started Dimensional. You were living in Brooklyn. 0:11:58.520 --> 0:11:58.699 Yeah. 0:11:59.440 --> 0:12:01.020 And you started in a brownstone. 0:12:01.220 --> 0:12:01.440 Right. 0:12:02.260 --> 0:12:03.979 So you moved the beds out, and you just were 0:12:04.020 --> 0:12:04.680 working there. 0:12:04.980 --> 0:12:05.500 Yeah. 0:12:05.740 --> 0:12:07.940 Did you have anybody to capitalize the company? Were there 0:12:07.960 --> 0:12:10.429 any venture capitalists who said, it's a good idea? I'll 0:12:10.450 --> 0:12:11.330 give you some money to start. 0:12:11.429 --> 0:12:14.179 We had a little bit of outside money. Schroeder Capital Management, 0:12:14.280 --> 0:12:17.760 a UK firm, provided a little bit of money. We 0:12:17.800 --> 0:12:20.600 only raised enough just to get through all the registrations 0:12:20.660 --> 0:12:23.380 and find out if we had clients. Went to call 0:12:23.420 --> 0:12:26.870 for telephone lines to run the... I thought I need 0:12:27.140 --> 0:12:31.489 six telephone lines to do the portfolio management. They wouldn't 0:12:31.510 --> 0:12:33.209 give me the lines because they thought I was a bookie. 0:12:33.429 --> 0:12:36.150 Because in those days, they weren't prepared for a startup 0:12:36.210 --> 0:12:37.590 firm in Brooklyn. 0:12:37.950 --> 0:12:41.090 So you start this company in 1981. And with how 0:12:41.130 --> 0:12:42.209 many people did you start it? 0:12:42.210 --> 0:12:44.070 There were about four or five of us. 0:12:44.370 --> 0:12:47.630 Your basic concept was that if you buy smaller stocks 0:12:47.809 --> 0:12:50.870 in an index kind of pooled account, that you'll probably 0:12:50.890 --> 0:12:52.920 do better than if you just pick stocks here and there. 0:12:52.960 --> 0:12:53.330 Is that it? 0:12:53.540 --> 0:12:56.540 Well, it was even simpler than that. You ought to 0:12:56.580 --> 0:12:59.420 have large and small. You shouldn't just have all your 0:12:59.440 --> 0:13:01.819 money in large. And you don't have access to small. 0:13:02.220 --> 0:13:06.010 But this was a portfolio concept. individually, small stocks are 0:13:06.030 --> 0:13:08.910 pretty risky. They can go to zero. But as a group, 0:13:10.100 --> 0:13:10.959 it's pretty compelling. 0:13:10.980 --> 0:13:13.160 All right. So you did that. And after how many 0:13:13.200 --> 0:13:16.040 years before you realized, hey, this is a real business, 0:13:16.059 --> 0:13:17.739 were you worried you would go out of business after 0:13:17.780 --> 0:13:18.240 a year or two? 0:13:18.260 --> 0:13:21.300 I was worried about that. Yeah. We had great feedback. 0:13:21.720 --> 0:13:23.900 People loved what we were doing. But being a startup 0:13:24.000 --> 0:13:26.750 firm with no track record, people just gave us small 0:13:26.790 --> 0:13:28.530 amounts of money to invest. 0:13:28.630 --> 0:13:31.069 What did your Kansas parents say about this? 0:13:31.710 --> 0:13:34.870 I overheard my dad once telling people that I was 0:13:34.910 --> 0:13:37.830 in high finance. They were shocked that I would leave 0:13:37.870 --> 0:13:39.709 a good job to do a startup. 0:13:40.070 --> 0:13:42.530 So the firm is taking off and you start in 81. 0:13:42.510 --> 0:13:44.189 And so by the end of the 80s, is it 0:13:44.610 --> 0:13:45.309 clear it's going to work? 0:13:45.550 --> 0:13:48.280 The whole concern was, can we last long enough to 0:13:48.900 --> 0:13:53.000 be profitable? Because of the money dribbling in, it wasn't 0:13:53.040 --> 0:13:53.560 very fast. 0:13:53.679 --> 0:13:57.620 So today, let's talk about Dimensional today. Dimensional has how 0:13:58.059 --> 0:13:59.179 much money does it manage now? 0:13:59.200 --> 0:14:00.640 A little over a trillion dollars. 0:14:00.660 --> 0:14:04.059 A trillion dollars. And how many employees do you have? 0:14:04.080 --> 0:14:05.490 About 1,700 worldwide. 0:14:05.620 --> 0:14:08.550 Is your customer base individuals or is it institutions? 0:14:08.710 --> 0:14:11.530 When we started, it was only large institutions, firms like 0:14:11.970 --> 0:14:15.600 IBM and Boeing and sovereign wealth funds. Along about 1989, 0:14:15.600 --> 0:14:20.020 I believe it was, we had a financial advisor approach us. 0:14:20.640 --> 0:14:23.620 He wanted access to our funds. We were unusual in 0:14:23.640 --> 0:14:27.140 that even though we were an institutional money manager, We 0:14:27.200 --> 0:14:31.520 co-mingled people into mutual funds. We had institutionally priced portfolios 0:14:31.560 --> 0:14:36.210 for low-cost funds. Advisors started approaching us, getting access to 0:14:36.270 --> 0:14:40.070 our funds. We found that was really terrific. 0:14:40.390 --> 0:14:43.610 Let's suppose I like the concept of an index and 0:14:44.290 --> 0:14:47.010 not just picking stocks. If I buy an S & 0:14:46.650 --> 0:14:50.130 P 500 index, a so-called Vanguard S & P 500 index, 0:14:51.900 --> 0:14:55.180 Would I do better with a dimensional fund because of 0:14:55.220 --> 0:14:57.660 the way you're doing it than a standard S & 0:14:57.400 --> 0:14:58.460 P 500 index? 0:14:58.820 --> 0:15:02.100 Well, we hope that's the case. And there's, like all ideas, 0:15:02.140 --> 0:15:04.940 there are periods of time when it looks really great 0:15:05.000 --> 0:15:07.800 and other periods of time when not so good. Our 0:15:07.850 --> 0:15:10.070 first nine years, actually, we started at a period of 0:15:10.090 --> 0:15:14.490 time when performance wasn't so good relative to the S & P. Fortunately, 0:15:15.150 --> 0:15:16.790 the last 35 years have been terrific. 0:15:17.650 --> 0:15:19.609 So can anybody call up and say, I want to 0:15:19.630 --> 0:15:20.890 be an investor in your fund? 0:15:21.290 --> 0:15:24.400 Well, yeah, we have these ETFs now that are publicly available, 0:15:24.480 --> 0:15:27.900 and we had started applying this research, and there were 0:15:28.000 --> 0:15:32.080 other ideas, particularly coming from Fama and French. Our capability 0:15:32.120 --> 0:15:34.750 now is basically handling the whole stock market. We have 0:15:34.800 --> 0:15:36.870 large company portfolios, small. 0:15:37.350 --> 0:15:40.790 You're the current chairman, but at some point, do you 0:15:40.810 --> 0:15:43.830 think the firm will ever go public or be sold, 0:15:43.850 --> 0:15:45.010 or are you just going to keep it where you 0:15:45.650 --> 0:15:45.980 have it now? 0:15:46.350 --> 0:15:48.630 Well, I don't know. What I do believe is if 0:15:48.990 --> 0:15:51.720 we keep our focus on doing what's really right for 0:15:51.760 --> 0:15:54.700 clients and for our employees, we'll probably be okay over 0:15:54.720 --> 0:15:55.200 the long haul. 0:15:55.620 --> 0:15:57.720 You're worried about the future in terms of what will 0:15:58.000 --> 0:15:59.220 come on, who's going to run it, or it's not 0:15:59.260 --> 0:16:00.200 your day-to-day worry? 0:16:00.560 --> 0:16:03.660 I think it's already been solved. We have our two co-CEOs. 0:16:04.140 --> 0:16:07.060 They're young, 50s and 60s. In fact, I think about 0:16:07.080 --> 0:16:08.760 this all the time now. I think the firm's running 0:16:08.800 --> 0:16:10.960 much better now than it would have had I stayed 0:16:11.060 --> 0:16:12.230 on being the CEO. 0:16:12.590 --> 0:16:15.290 Now, your father was always worried that the world would 0:16:15.310 --> 0:16:17.740 fall apart. So he always kept some money in his 0:16:17.930 --> 0:16:20.480 safe deposit box. Right. When he passed away, you went 0:16:20.520 --> 0:16:22.560 into a safe deposit box. And what did you find? 0:16:22.600 --> 0:16:27.660 Found $ 15, 000, a huge fraction of their net worth. And 0:16:27.700 --> 0:16:31.820 I realized right away, I mean, here's a couple that 0:16:32.420 --> 0:16:35.560 grew up during the Great Depression, fought World War II, 0:16:35.860 --> 0:16:38.720 you know, went through all these different cycles. That was 0:16:38.740 --> 0:16:42.200 their safety net, you know, and... That's what enabled them 0:16:42.240 --> 0:16:45.700 to stay calm. They knew that they had that 15,000. 0:16:45.700 --> 0:16:48.420 Now, you parents did live to see your success. I mean, 0:16:48.440 --> 0:16:50.480 they may not have understood exactly what you did, but 0:16:50.760 --> 0:16:52.750 they realized you had been very successful, I assume. 0:16:52.970 --> 0:16:55.650 Yeah, I was glad to see that. They got to 0:16:55.690 --> 0:16:58.350 see a glimpse of it anyway. But part of the story, 0:16:59.010 --> 0:17:01.190 I went back and looked at that 15,000 and said, 0:17:01.210 --> 0:17:01.489 what if. 0:17:03.340 --> 0:17:04.859 Dad had put it in the stock market when he 0:17:04.900 --> 0:17:07.619 got back from the war in the end of 45. 0:17:07.619 --> 0:17:10.060 Now we're 40 years later. What would it be worth? 0:17:10.060 --> 0:17:13.320 $ 15, 000 if he got the market return would be worth 0:17:13.340 --> 0:17:14.040 a million dollars. 0:17:14.480 --> 0:17:16.580 Let me ask you about a couple of things in 0:17:16.600 --> 0:17:18.960 your book. You'd always wanted to have a car. And 0:17:18.980 --> 0:17:20.550 then one day you come home and there was a 0:17:20.609 --> 0:17:23.810 nice red car, I think, in the driveway. And you 0:17:23.850 --> 0:17:26.090 went in and you thanked your father for buying you 0:17:26.130 --> 0:17:28.710 this car. But it turned out he hadn't intended to 0:17:28.750 --> 0:17:30.550 give it to you. It was actually bought for your mother. 0:17:30.670 --> 0:17:33.130 That's a great story about it. what kind of people 0:17:33.190 --> 0:17:35.510 my parents were. They were wealthy people. They just didn't 0:17:35.530 --> 0:17:38.230 have much money. When I got accepted in the PhD 0:17:38.250 --> 0:17:40.490 program at Chicago, my dad said, I'll go out and 0:17:40.530 --> 0:17:42.870 find you a car. So I come in one day 0:17:42.890 --> 0:17:47.010 and there's this car in the driveway and I go in. 0:17:47.570 --> 0:17:49.550 I knew what a sacrifice it would be. And that 0:17:49.590 --> 0:17:51.949 was it. And then about 25 years later, as my 0:17:51.990 --> 0:17:55.230 dad had a terminal case of cancer, he goes, do 0:17:55.250 --> 0:17:56.909 you remember your first car? I said, of course I 0:17:56.950 --> 0:17:58.949 remember my first car. He goes, well, you know, your 0:17:58.990 --> 0:18:01.649 mom always wanted a red convertible and I bought her one. 0:18:02.190 --> 0:18:03.770 Then you came in, you thought it was for you. 0:18:04.270 --> 0:18:06.899 And you were so excited. Your mom just said, oh, 0:18:07.280 --> 0:18:08.160 let's just give it to him. 0:18:08.619 --> 0:18:11.220 Wall Street is famous for copying good ideas that other 0:18:11.240 --> 0:18:14.200 people have. So you had a good idea. Are people 0:18:14.240 --> 0:18:15.460 trying to copy what you do? 0:18:15.900 --> 0:18:21.030 Yeah, all the time. And that's the lesson I learned. 0:18:21.970 --> 0:18:26.530 Any investment approach you come up with will have periods 0:18:26.550 --> 0:18:28.270