Chicago Booth Magazine

Five minutes with David Booth

Interviewed by Melissa Bernardoni (Photo by Matthew Gilson)

What do you consider your greatest accomplishment?
Professionally, it’s participating in the development of Dimensional Fund Advisors from its inception. Personally, it’s having a family.

Is there something you wish you had known at the start of your career?
I wish I would have known how important cash flow is in the first few years of a firm. Everybody knows it’s going to be tight, but however tight you think it’s going to be, it’s going to be tighter than that.

What has been your most humbling moment?
There have been a lot of humbling moments. When you’re out competing for clients, it’s humbling when you don’t get the business. It’s humbling when a client becomes disappointed enough to leave. Every time there’s a market crash, that’s pretty humbling.

What’s the single hardest part of your job?
It’s developing appropriate organizational skills as the firm grows. When you’re small, you don’t need to have much of a management philosophy; as you get bigger and more structured, you need more standard solutions.

What’s the best part of your job?
The very best part is that I don’t really have to do things that I don’t want to do any more. When you start up, there are certain things that have to get done and there isn’t always somebody else around to do it. Now, it’s like not having to eat your vegetables anymore.

Is there a particular part of your job that you would never want to give up?
The dialogue we have with clients and academics. It’s very stimulating.

Have you had a critical moment in your career where you were able to succeed, perhaps when failure felt imminent?
When we started the firm, we had a long registration process with the mutual funds that we wanted to get started. It took about nine months. And one day the lawyer called up and said, “You’re effective.” We had clients, and they wired the money in, and it was a real company. Any time you get people’s money it’s a big reality check, an “a-ha” moment. There wasn’t any one moment when we thought, now we’re going to survive. But just getting the first few clients was amazing— you always remember the first few clients for every investment strategy.

Career Highlights

Education: BA, MS, University of Kansas
MBA, University of Chicago

After receiving his MBA, David Booth worked on the first index funds at Wells Fargo and later served as vice president at A.G. Becker.

His publications include “Diversification Returns and Asset Contributions” co-authored with Eugene Fama, which won a Graham and Dodd Award from Financial
Analysts Journal in 1992.

He is chairman and co-CEO at Dimensional Fund Advisors, which he co-founded in 1981.

If you had to choose another line of work, what would it be?
I would stay in the finance area. This is what I’ve always wanted to do. Whatever the second choice is, it would be a big drop from what I’m doing now. If I couldn’t do what I’m doing, I guess the next best thing would be to teach. That was the plan I’d started with.

Can you pinpoint the moment when you decided you wanted to create Dimensional, when you got the seed for the idea?
Yes, I had done consulting work for AT&T and helped them set up an S&P 500 index fund that they managed internally. Along the way, I said, you really don’t need an S&P 500 index fund because they had 100 managers managing equities for them and one big index fund, and none of these 100 managers was holding stocks of smaller companies in a meaningful way. If you want to index something, why not index stuff outside the S&P, the smaller companies? Eventually they agreed to do that. I told people what we were doing and there was a lot of interest. One of my colleagues said there might be a business in this. I thought about how we would set it up, and that was really the genesis.

Is there anything else you’d like to share?
What’s really been remarkable about business school is how much the principles I learned there are applicable every day at the firm.

Did you expect that when you went to business school?
No. Today the differences between business schools aren’t as great as they used to be—they teach some cases at Chicago and they teach a little theory at Harvard— but when I was at school, the idea of teaching theory and modeling was viewed as “ivory tower,” not all that practical. I always thought it was worthwhile, and I’ve been impressed to see that that approach has been validated, at least as far as my career goes. It’s been terrific, and if I had to do it all over again, I’d want the same kind of business education.