Overview of Masters in Business with David Booth
This episode of Masters in Business features David Booth, founder and chairman of Dimensional Fund Advisors (DFA), discussing his long career in finance, the academic research that shaped his investing philosophy, and the ideas behind his book Stay Calm: Learning to Embrace Uncertainty in Investing and Life. Booth traces the origins of modern factor-based investing, explains why markets are difficult to beat, and argues that investors should focus less on prediction and more on disciplined planning, low-cost diversification, and emotional steadiness. The conversation also covers his philanthropy, his relationship with the University of Chicago and the University of Kansas, and the role of patience, compounding, and human ingenuity in both markets and life.
Key Takeaways
- Booth’s investing worldview was shaped by the emergence of finance as a data-driven science at the University of Chicago.
- He argues that most active managers do not consistently beat the market after fees.
- DFA’s approach is not pure market-cap indexing; it uses academic research and factor tilts such as size and value, combined with careful trade execution.
- The central message of his book is to stay calm, accept uncertainty, and avoid trying to predict the unpredictable.
- Investors should focus on what they can control: savings rate, asset allocation, diversification, and behavior.
- Booth views public markets as a “miracle” because they provide broad access to wealth creation through compounding.
- His philanthropy reflects a deep sense of gratitude to the institutions and communities that shaped him.
Booth’s Career and the Origins of DFA
From academia to applied finance
Booth originally expected to become an academic, earning degrees in economics and business and entering a PhD program at the University of Chicago. While there, he worked with Gene Fama and became immersed in the new wave of empirical finance. Eventually, he realized he was more interested in applying the ideas than researching them.
Early work at Wells Fargo
He left the PhD program, completed his MBA, and joined Mac McQuown at Wells Fargo in San Francisco. That environment became one of the early laboratories for modern indexed and factor-based investing.
Building Dimensional
Booth helped launch DFA in 1981 from very modest beginnings, including his apartment in Brooklyn Heights. The firm grew from a small, research-driven operation into one of the major institutional investment organizations in the world.
The Science Behind the Markets
Why academic finance mattered
Booth emphasizes that finance became a true science once researchers had enough data to test hypotheses. The University of Chicago’s CRSP database gave academics the tools to study long-run market behavior, manager performance, and portfolio construction in a rigorous way.
Efficient markets and the challenge to Wall Street
The efficient market hypothesis changed the investing conversation by suggesting that prices already incorporate available information. Booth says this undermined the old belief that professional managers could reliably “beat the market” through stock picking and market timing.
Why indexing caught on
One of the key takeaways from the research was that many active managers failed to outperform after fees. That supported the logic of low-cost indexing, though Booth notes that indexing also has quirks and constraints, especially around forced trading when index constituents change.
DFA’s Investment Philosophy
More than passive indexing
Booth explains that DFA is often misunderstood as simply an index fund company. In reality, its approach combines:
- broad diversification
- academic factor research
- small-cap and value tilts where appropriate
- disciplined trade execution
- low costs and tax awareness
Factor investing before it was mainstream
DFA’s early work focused on size, especially small-cap stocks, because institutional portfolios were underexposed to smaller companies. Booth describes this as providing access to parts of the market that investors were not otherwise getting.
Trading as a source of advantage
A distinctive theme in the interview is DFA’s execution skill. Booth argues that by trading flexibly and intelligently, the firm can often get better prices than index funds that must trade mechanically. In other words, it tries to avoid being forced to buy when everyone else is buying and sell when everyone else is selling.
The Message of Stay Calm
Uncertainty creates opportunity
Booth’s book argues that uncertainty is not a flaw in markets or life; it is the condition that makes progress and opportunity possible.
Plan, don’t predict
A major theme is that investors should make decisions based on a long-term plan rather than short-term forecasts. Booth says market prediction is mostly a waste of time because markets are inherently unpredictable.
Control what you can, manage what you can’t
His practical advice is to focus on the parts of investing you can influence:
- how much risk you take
- how much you save
- whether you stay invested
- how diversified your portfolio is
You cannot control recessions, crashes, the Fed, wars, or pandemics, but you can control your behavior.
Stay invested through volatility
Booth argues that bad news is often already reflected in prices. When markets fall, the temptation is to panic, but his view is that the market is usually reacting rationally to known information. The better response is usually to stay the course.
Thoughts on Financial Media and Noise
Booth is critical of modern financial media, which he says is built to capture attention rather than provide useful guidance. His point is not that investors should ignore all information, but that they should recognize that most “urgent” news is already priced in by the time they hear it.
His core message:
- do less
- tune out noise
- trust the long run
- avoid overreacting to commentary and forecasts
Philanthropy and Legacy
University of Chicago
Booth’s landmark gift to the University of Chicago Business School reflected gratitude for the education and intellectual foundation he received there. The school was later renamed the Chicago Booth School of Business.
University of Kansas
Because Lawrence, Kansas is his hometown, Booth has also supported the University of Kansas, especially athletics, which he sees as important for school spirit, recruiting, and community identity.
James Naismith’s basketball rules
Booth also bought the original typed rules of basketball written by James Naismith and donated them to Kansas. He viewed it as a historically and emotionally fitting gift, since Naismith taught at Kansas and is buried in Lawrence.
Art and preservation
He discussed his support for the Museum of Modern Art, especially funding conservation. His point was that preserving cultural patrimony matters as much as acquiring art itself, and conservation is an often overlooked part of stewardship.
Career and Life Advice
For younger investors or professionals
Booth’s advice for recent graduates was to:
- identify your comparative advantage
- find work that matches your passion
- pay attention to your values
- stay aligned with what matters over the long run
What he wishes he had known in 1981
If he could go back, Booth says he would have better understood how difficult it would be to persuade people to accept the evidence-based investing message. Good ideas are not enough; they need time, repetition, and education to take root.
Notable Lines and Ideas
- “Uncertainty isn’t something to fear; it’s where possibility lives.”
- “Stay calm.”
- “Plan, don’t predict.”
- “Control what you can; manage what you can’t.”
- “This isn’t a book about how to invest. It’s a book about how to think about investing.”
- “True worth” matters more than “true wealth.”
Bottom Line
This conversation presents David Booth as both a pioneer of evidence-based investing and a thoughtful philosopher of uncertainty. His core message is simple but powerful: markets are not designed to be predicted, but they are designed to reward discipline, diversification, and patience. Whether discussing investing, education, or philanthropy, Booth returns to the same idea—long-term success comes from staying calm, trusting evidence, and compounding good decisions over time.