David Booth credits hard work, good luck, and syzygy—the alignment of celestial bodies—for getting him to where he is today. “Being a successful entrepreneur is some part skill, some part luck,” he says. For Booth, CEO and co-founder of Dimensional Fund Advisors, planet alignment began when he took his first finance class at the University of Kansas, continued as he pursued an MBA at the University of Chicago and aligned perfectly in the early 1980s. Then he recognized the opportune timing, putting his business idea into practice.
“I wouldn’t change anything I’ve done,” Dimension Fund Advisors CEO David Booth told a room of Mays full-time MBA students. “Even mistakes I’ve made, I probably learned from them, and that contributed to my path.” (view more photos)
The story and complexity of Booth’s success, though, are more involved than the luck and cosmic bodies. Though Booth claims “most of this stuff was unplanned,” brainpower and strategy rule behind the forming of theories and practices at Dimensional, an investment firm dedicated to innovative investment strategies.
“In 1969, the field of finance was less an academic discipline and more an apprenticeship,” he tells. But that was soon to change as all the right people were at the University of Chicago at the same time as the finance discipline gained its footing.
When he left Chicago with an MBA in 1971, Booth’s next stop was Wells Fargo, where he became an innovator in indexing. He made a mark on the field, collaborating with John McQuown on the first index funds. His stars shifted to align with those of Rex Sinquefield. The two realized that that they had developed the same theory involving indexing small companies. Though their new philosophy was “an untried idea bordering on radicalâ€¦and relying fully on academic theories,” both men believed in their ideas. They left successful, stable jobs in 1981 to start a company
Working from Booth’s New York City brownstone, the duo created a company that was based not on speculation, but on the science of capital markets. Dimensional Fund Advisors was born. The two worked years ahead of the industry and contrived a new way to invest, focusing on the stronger performance of small capital stocks. Though the idea seemed radical and many doubted the philosophy, the duo’s idea proved to be stellar and destined for success.
Jean Sinquefield, the company’s former head of portfolio management and trading explained that at the company, “There was a huge influence on how you design products, how you thought about things. You just didn’t do something; you did something because it was rigorously proved.” That focus on academic research would prove to be one of the company’s greatest strengths.
Now in its 29th year, the company has remained on the cutting edge in its field — it has no competitors. The reason? “Nobody else has chosen to trade the way we do,” says Booth. Dimensional remains dedicated to including relevant academic research to its operations, employing leaders in asset pricing to “find new sources of risk and return in advance of the market.” In addition, the company places high priority on customer feedback. Backed by solid theory and economic knowledge, the company has evolved and thrived beyond either of its founders’ wildest dreams.
Booth, seen here answering questions from an MBA student, has used a mix of cutting-edge theories and high research standards to make Dimensional Fund Advisors a leader in its field. (view more photos)
Though cutting-edge theories and the highest research standards played a large part in the formation and success of Dimensional, Booth believes in the importance of timing and syzygy. “I wouldn’t change anything I’ve done,” he says. “Even mistakes I’ve made, I probably learned from them, and that contributed to my path. You never know why you were successfulâ€¦Maybe it was doing poorly on that test somewhere that energized you, or maybe that rejection by a client, or somebody you were dating; who knows? I wouldn’t change anything.”
Whether it is a lucky lining-up of the stars or not, David Booth, with the help of sound scientific research and dedication to a theory he believed in, pioneered the way for small capital fund investing.
David Booth shared his insights at Texas A&M’s Mays Business School on Thursday, November 11, 2010. His visit was part of the Mays Dean’s Distinguished MBA Executive Speaker Series. He addressed MBA and undergraduate students, sharing thoughts that underpin Dimensional’s overall strategy, and his problem-solving innovations for clients that set the firm apart from its competitors. Booth received his MBA from the University of Chicago in 1971. He also holds an MS and a BA from the University of Kansas. The University of Chicago Booth School of Business was named for Booth in recognition of the $300 million gift he made to the school. He serves as a lifetime member of the school’s business advisory council.