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Chicago Booth Magazine


The True Believer: David Booth, ’71, proves his Chicago smarts by refusing to out-think the market

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Brownstone Beginnings

David Booth, '71But while Dimensional’s academic bench was stellar from the start, its original corporate trappings were decidedly down-toearth. Dimensional’s first world headquarters was in a spare bedroom of Booth’s Brooklyn Heights brownstone. When he requested six phone lines, New York Telephone initially refused. “They thought we were running a bookie joint,” he says. “I ended up having to call up the VP of finance and say, ‘Look, we’re a struggling firm out here in Brooklyn, can you send somebody out?’ So they did—and they became a client.”

It wasn’t just Dimensional’s phone requests that initially seemed outlandish to outsiders. While indexing would one day become an industry standard, in 1981, it was regarded as radical at best. Dimensional’s principals and sales teams made more than one thousand calls in the first two years of the firm’s existence, and rejections were the norm.

But it didn’t take too long for their way of thinking to gain traction. When the New York Times profiled newcomers to the pension management business in 1983, the story opened with the sentence, “David Booth makes it look easy.” By then, Dimensional had landed 48 corporate pension fund accounts worth $650 million. “And he still has time to take midday jogs across the Brooklyn Bridge,” the story gushed.

Booth told the Times he expected Dimensional’s approach to investing wouldn’t be unique for long. He was wrong. “Nobody else has tried to imitate what we do,” he says now. “It’s really funny— and staggering—because to my mind it’s Economics 101. And I think it’s because at this basic level, we have this belief in how markets work that we learned at Chicago Booth that’s difficult for most people to accept. It’s a strong belief system that gives us a degree of freedom to be innovative.”

For its part, the financial press has always been somewhat flummoxed by the way Dimensional has leveraged intellectual heft and data-driven certitude to reap mind-boggling results. Reading the firm’s clips conjures up an image of Albert Einstein meets Elmer Gantry, with writers evoking a vocabulary that includes “wonky,” “brainiac,” and “über intellects” as well as “crusade,” “revival meeting,” “zealots,” “religious cult,” and “fundamentalists.” It’s not lost on Booth that these are often the same words used to describe the business school itself. The success of his company, he says, should offer more than enough proof that Chicago theories pay off with real-world rewards. “Our business proposition is the value added by implementing these ideas,” he says.

While Booth himself decided against a career in academia many years ago, he’s never left it completely behind. He’s written numerous scholarly articles, and one he co-authored with Fama, “Diversification Returns and Asset Contributions,” won a Graham and Dodd Award from the Financial Analysts Journal in 1992. And he’s still very much committed to passing on to others the ideas that changed his life. Classrooms are standard features at Dimensional’s offices. Potential clients not only have to pass a rigorous screening process, they also have to attend a mandatory and decidedly un-cushy two-day seminar on the theories behind Dimensional’s success. Expenses are not paid. (“We don’t even give them pens,” Dimensional’s Daniel Wheeler, told Bloomberg News.)

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