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Rex Sinquefield, ’72, who helped lay the foundation for “passive” stock market investing, recently retired from the $86-billion-asset money management firm, Dimensional Fund Advisors, he helped found. In a look back at his career, the LA Times highlighted the central role the GSB played in shaping economic theory.
Sinquefield came to the GSB to earn his master’s degree and found himself at the center of thought on free markets. As described in the article, Sinquefield had the “a-ha” moment that changed his life in an economics course taught by Merton Miller, who would go on to earn a Nobel Prize. That’s when an explanation of efficient markets helped him understand why previous efforts to pick stocks had left him feeling “somewhere between stupid and lucky.”
Sinquefield had further schooling in efficient markets by the man who created the theory and would serve as his mentor, Gene Fama. (Fama currently serves as the chairman of the board of The Center for Research in Security Prices.)
The training Sinquefield received at the GSB helped change the investment field. Just a little while after graduation, Sinquefield created the first fund to match the performance of the S&P 500. That was in 1973, three years before Vanguard’s portfolio appeared. To bolster his claims, Sinquefield, along with fellow GSB graduate Roger Ibbotson, did what even the S&P research department said was impossible. They created a database of average returns going back to 1926. The volume they wrote, “Stock, Bonds, Bills and Inflation” is still used today.
Eventually, Sinquefield along with yet another GSB believer in efficient markets, David Booth, ‘71, launched Dimensional Fund. At the time, in 1981, their plan to create funds that passively invested in small company stocks was considered highly original. Today, that trend according to the article, has influenced “virtually every investment portfolio….in some way...”
Three decades after they moved the firm from New York to California, Sinquefield is retiring. His success as a pioneer in passive investing serves as testimony to the theories he learned at the GSB.
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Fortune magazine ran an article on Sinquefield’s early collaborator, Roger Ibbotson, PhD ’74. Another leader in investment research, Ibbotson caused a revolution in the pension fund business with his forecast of long-term double-digit returns for the stock market. The article, “The 9% Prediction” appeared in the December 26 issue of Fortune.