The Science Behind The Markets: Masters in Business with David Booth

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, podcasts, radio, news.

**Barry Ritholtz** (0:07)
This week on the podcast, what can I say? Legendary investor and founder of Dimensional Funds, David Booth talks about his entire career, his philosophy, philanthropy, how he helped build DFA to a trillion dollar fund and why people refused to just manage what they can and stay calm in the face of volatility and market events. I thought the conversation and the book Stay Calm was fascinating, and I think you will also.
David Booth, welcome back to Bloomberg.

**David Booth** (0:53)
Well, thanks for having me, it's always a pleasure.

**Barry Ritholtz** (0:56)
I was going to say the same, it's always a pleasure. I know your background, but I'm going to assume a lot of listeners may not be familiar with it. So I want to start with go all the way back to your college and grad school education. You get a bachelor's in economics from the University of Kansas, then you get a master's degree focused in business, and then you go to the University of Chicago for a Ph.D.
That very much sounds like academia was the future.

**David Booth** (1:27)
Well, it really was. I mean, in the sense that like a lot of kids, when you're in college or even high school, you think, boy, I'd like to be a professor, because that's all you know, right?

**Barry Ritholtz** (1:38)
Yeah. It's a great job. You're on a campus. It looks like fun.

**David Booth** (1:42)
Yeah. Back in those days, it was good professionally.
I mean, there is a thrill of teaching kids, seeing the light go on. Kind of the same thing we have in business. When you have a client, finally, when they get it, it's very cool.

**Barry Ritholtz** (2:03)
So at Chicago, you pivot from a PhD to an MBA, and eventually become some young professor, was not that much older than you. So, Eugene Fama's assistant, researcher, TA, tell us a little bit about what led to that pivot.

**David Booth** (2:19)
Well, I mean, the backdrop is, in that period of time, the late 60s, early 70s, that's where science really emerged, or finance emerged as a science, and has continued to evolve even today. And by that, I mean, for something to be a science, you need testable hypotheses. Don't worry, I'm not getting too heavy into this.
The, and before 1960, they just didn't have the data to test things out. So, and the early 60s, that University of Chicago developed this research quality database.

**Barry Ritholtz** (2:57)
Crisp.

**David Booth** (2:58)
Crisp. It started in 1926, so now we have, they've updated it, so now we have over 100 years of data.

**Barry Ritholtz** (3:05)
When did Chicago first roll that out?

**David Booth** (3:08)
About 63
Well, Fama, my mentor and Nobel Laureate in 2013, he was in the PhD program, and Chicago, Jim Lorry and Larry Fisher developed this database, and they turned it over to Eugene, and said, look, do some paper, do something with this data. And so he started, he had a head start on everybody, which is, and for the next 20 years, he was the most cited academic.

**Barry Ritholtz** (3:38)
Still one of the most cited academics.

**David Booth** (3:40)
Maybe the most ever, really, in finance.

**Barry Ritholtz** (3:44)
First mover advantage, for sure. So around the time you finish your PhD, Fama's efficient market hypothesis, that thesis was starting to gain traction, at least in academia, if not yet on Wall Street. Tell us a little bit about what was so attractive about EMH.

**David Booth** (4:06)
Well, it was incredibly exciting. First, let me just make a slight correction. I actually didn't get a PhD.

**Barry Ritholtz** (4:12)
Right. You got a DM.

**David Booth** (4:13)
You worked on your PhD and then got an MBA. Yeah.
Eventually, I decided the world would be better served if Eugene Fama did research, and I tried to apply the ideas rather than the other way around. So I walked into his office one day and said, look, I think I'd like to leave the program. So he calls up Mac McQuaun out at Wells Fargo in San Francisco. Mac was in charge of applying quantitative methods for the bank and one of the areas he worked on was investing. So he calls up Mac. Mac had always wanted one of his students, so he recommended me and Mac and I hit it off and he invited me to go work for them. So I decided to leave the program.

**Barry Ritholtz** (4:58)
So the first job, did you ever get your MBA by the way?

**David Booth** (5:00)
With the MBA, on the way out, they gave me an MBA.