Masters in Business · Friday, August 28, 2026
David Booth, founder of Dimensional Fund Advisors, discusses the origins of his firm, which grew out of academic research on market efficiency and the limitations of active stock picking. He explains how the insights of Eugene Fama and others led to the development of passive investing strategies, initially serving institutional clients before expanding.
“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. And before 1960, they just didn't have the data to test things out. So in the early 60s, the University of Chicago developed this research quality database.”
“And the pros don't seem to be able to beat that. Well, the data on the pros, it doesn't matter if you're looking at Morningstar or Spiever or Dalbar or any of the annual studies, is in any given year, less than half of professionals beat the index, and I think that's net of fees.”
“So the idea of our group was, can we... Okay, we accept Michael Jensen and the work of others says that the pros can't seem to beat the market. So what are you supposed to do? So by then, we'd developed quite a bit of the science. And one idea... based on the models at the time. Sounds silly now, but it was, well, if you have a portfolio that has a higher beta than the market, it should outperform.”