Chicago Booth Magazine
The True Believer: David Booth, ’71, proves his Chicago smarts by refusing to out-think the market
In 1969, David Booth packed up his Valiant convertible and left Lawrence, Kansas, to begin the doctoral program at Chicago Booth. For a diehard Jayhawk, it was a major step. Booth had spent his teenage years in a house just down the street from Allen Fieldhouse. He had already earned a bachelor’s in economics and a master’s in business from the University of Kansas. And he was certain that once he’d earned his PhD, he’d return to KU as a professor.
But Booth had experienced an epiphany—and it had Chicago Booth written all over it. During his master’s program, he took finance from Frank Reilly, PhD ’68. The syllabus had included the efficient markets theories of Merton Miller and Eugene Fama, MBA ’63, PhD ’64, and Booth recognized right away that these were driving “a fundamental paradigm shift.” He wanted to be part of the revolution. Reilly, he recalls, told him Chicago was “the only place to go.”
Booth didn’t become a professor. Instead, building almost entirely on what he experienced at Chicago—both the insights he gained into efficient markets and the relationships he forged there—he co-founded the maverick investment firm Dimensional Fund Advisors. Since opening its doors in 1981, the firm has grown into one of the largest institutional fund managers in the United States. As of October 2008, Dimensional managed about $120 billion in assets, with many of its funds routinely beating the benchmarks.
Booth’s arrival at Chicago as a doctoral student is a great example of perfect timing. Over the previous ten years, the business school had emerged as an undisputed if iconoclastic finance powerhouse, with talent that included future Nobel laureates Miller and Myron Scholes, MBA ’64, PhD ’70, and, of course, Fama. These scholars didn’t have to go far to get the data demanded by their rigorously empirical work: much of it was supplied by the first-ever historical stock price database, created in 1960 at Chicago’s Center for Research in Security Prices (CRSP) by James Lorie and Lawrence Fisher.
“It was a wild time to be at Chicago,” Booth says. “The world was changing very rapidly, and Chicago was really at the center of it.” The work that was done in Chicago between 1963 and 1973 in finance, he says, has yet to be surpassed by any other business school anywhere.
Booth’s very first course at Chicago was finance, taught by Fama himself. “That was probably my life-changing event,” he says. “It was a two-quarter sequence, and we didn’t even have a textbook. It was all photocopies of data material. Fama and Miller had gotten together and decided to write a textbook, and we had the rough draft.” On the first day, Booth recalls, Fama told the students that his class would be the most practical one they would ever take. “I was young and naïve enough to believe him—and it turns out in my case to have been true.”