50 Years of Evidence-Based Investing (w/ David Booth)

**David Booth** (0:00)
Yeah, indexing is okay, but there have to be better ways to invest.

**Benjamin Felix** (0:05)
You're just guessing and hoping.

**David Booth** (0:07)
You're just guessing and hoping.
I believe it and I have data. You don't believe it and you don't have data. So once you get some data, come back to me.

**Benjamin Felix** (0:21)
Welcome to episode 424 of The Rational Reminder Podcast. I'm Ben Felix, Chief Investment Officer at PWL Capital.

**Cameron Passmore** (0:27)
And I'm Cameron Passmore, Chief Executive Officer at PWL Capital.

**Benjamin Felix** (0:31)
Today we're joined by David Booth, who co-founded Dimensional Fund Advisors in 1981, in the spare room of his Brooklyn apartment. And today that firm manages roughly $1 trillion in global assets.

**Cameron Passmore** (0:42)
And today we discuss his new book, Stay Calm, Learn to Embrace Uncertainty in Investing and Life. We dive into insights from his 50 plus years at the center of this evidence-based investment world.

**Benjamin Felix** (0:55)
Make sure you stick around to the end to hear Cameron and my thoughts on the conversation. But for now, let's get into the episode.

**Cameron Passmore** (1:05)
David Booth, it's a great pleasure to welcome you back to The Rational Reminder Podcast.

**David Booth** (1:10)
Well, it's great to be here again. Thanks for having me.

**Cameron Passmore** (1:12)
And congratulations on your fabulous just-released book. I read it twice and I think it's a terrific piece of work and a terrific representation of your career, quite honestly.

**David Booth** (1:25)
Oh, well, thanks. You know, that was tough writing, but we slugged our way through it and I'm pleased with what came out.

**Cameron Passmore** (1:31)
No kidding.
So I have to ask you, what lesson did your job, I believe it was Aaronsburg Shoe Store. So what lesson did that teach you?

**David Booth** (1:40)
Well, I was a shoe salesman in my senior year in high school and then in college. It was a commission-based system, heavy commission.
It was a great learning experience because what I learned was, even though I had a huge incentive to make a sale, even more important than that was when I went home at night, I wanted to feel good about myself. I realized I really wasn't into selling people shoes that didn't fit, or try to probably him find something they really didn't want. The client would be happier and I'd be a whole lot happier if we just found a good outcome and sometimes you just don't have the right shoe with the right size, and that's okay too.

**Benjamin Felix** (2:16)
I love the story. I have to ask, was there a shoe sale that you regretted?

**David Booth** (2:21)
Yeah, early on.
I came to this conclusion after I made the mistakes that people selling on commissions make. I sold people some shoes and I felt really bad about it, so I go, I'm not going to do that again.

**Benjamin Felix** (2:35)
Super interesting. That lesson and that thinking, how did you apply that to the philosophy that underpins dimensional?

**David Booth** (2:42)
Has nothing to do with the investment philosophy, but has everything to do with the business philosophy. Do the right thing and sometimes you don't have the right shoe or whatever. You're not what people are looking for and that's fine too.
Just be upfront with people and over the long haul, if you have a good scientific basis for what you're doing and you have a good argument, then you'll be fine. You won't convince everybody, that's okay too.

**Benjamin Felix** (3:09)
You mentioned that it has nothing to do with the investment philosophy. I don't know if I agree with that. I think it has a lot to do with the investment. When I found Dimensional, I was disillusioned with the investment management industry, preparing to leave the industry entirely.
I found Dimensional's products and I was like, wow, that's a type of investment that works with science-based thinking. That makes sense to me. I don't know if you can disconnect that way of thinking about what is right from the investment philosophy.

**David Booth** (3:39)
Even as a lowly shoe salesman, I knew that some shoes were made better than others. As long as I was upfront with it, sometimes a lower-cost shoe is really the more expensive one.

**Cameron Passmore** (3:51)
That's a great line. What is the gift of being an outsider?

**David Booth** (3:55)
This kind of came up over writing the book. My parents were great people. They grew up in the Great Depression and fought in World War II.
I had a different experience, a set of life experiences than we all have had. They never really invested in publicly traded stocks and bonds. They thought of themselves as outsiders, and that insiders made all the money. If they invested, the insiders would just take advantage of them. They wouldn't have anything. They never invested. That's where the science comes in. If you look at the science that was developed in finance in the 60s and 70s, you can summarize it with two points. The first point is, if you look at stock and bond markets, their returns behave the way we hope they would. You know, there are ups and downs, for sure.