Masters in Business · Friday, August 28, 2026
David Booth recounts how Dimensional Fund Advisors' initial focus on small-cap stocks was inspired by academic research and market observation. He explains that by identifying that institutional investors were underweight in smaller companies, DFA aimed to provide access to this segment, defining 'small' by the smallest quintile of companies on the New York Stock Exchange.
“So we often running with a small cap fund, we had clients and Fama goes, well, you know, we have a student here that did his PhD dissertation on just what you're looking at, I think. He goes, uh, Ralph Bonds. Ralph had done a study looking, breaking down stocks on the New York Stock Exchange into size quintiles, largest to smallest. And the smallest stock, smallest quintile, outperformed all the others by quite a bit over time.”
“So, putting my marketing hat on, I go, I think we'll define small to be the smallest quintile of companies on New York. And Mama didn't raise a complete idiot here, you know? So that was how we got started. And there really wasn't a counter argument because people couldn't say, oh, you know, I've got that covered. They knew they didn't have a small cap covered. So what we were able to do is provide access, which is to small companies. And that's really the basis of Dimensional.”
“And then, and talking to Fama, he said, you know, we had, and so we got our first clients with that. So we often running with a small cap fund, we had clients and Fama goes, well, you know, we have a student here that did his PhD dissertation on just what you're looking at, I think.”