Episode summary
'Stay Calm' Author Discusses the Science of Investing | At Barron's
At Barron's
· · 28 min · Hosts: Andy Serwer · Guests: David Booth
Summary
David Booth argues that investing should be treated as a science, not a contest of intuition or stock-picking genius. He says decades of academic research since the 1960s have made it harder to defend the old claim that active managers can reliably outguess the market, and that investors today generally get a better deal than they did when he started in 1971.
He distinguishes Dimensional Fund Advisors from simple indexing by saying DFA uses the evidence but does not slavishly track an index. Booth says index funds can create hidden costs, such as price pressure when stocks enter an index, and that a little judgment in trading can improve outcomes without pretending to have magic. He argues that most active managers do not beat the market over time, though a few outliers like Warren Buffett may be exceptions, and says active traders still serve a price-discovery role.
Booth also makes the case for staying calm and staying invested through volatility. He says stock and bond returns have historically rewarded long-term investors, the market was not obviously overvalued, and short-term panic during episodes like COVID is usually a mistake. He closes by connecting investing to education, philanthropy, and what he calls true worth: family, friends, and health rather than just money.
Key takeaways
- Booth says the science of investing shows most active managers do not beat the market over time, even if a few exceptions may exist.
- He argues DFA is not a pure index shop because indexing can impose hidden trading costs and price pressure.
- Booth says long-term investors should stay calm and stay invested rather than react to short-term market shocks like COVID.
- He says stock returns of about 10% a year over a century and bond returns of 4% to 5% make compounding accessible to ordinary investors.
- Booth says the American dream is still alive, but U.S. K-12 education is a major risk to future opportunity.
Notable quotes
“we're based on um we're found on the idea we can apply the science of investing”
“These professional investors are worth the cost and that's caused the whole industry to change”
“just because you can't out guess the market doesn't mean you can't do better than the market”
“we have extremely good and then we have the risk that we're not educating people to meet the needs of the future”
How the episode opens
Hello everyone and welcome to At Baronss. I'm Andy Serur and welcome to our guest David Booth, co-founder and chairman of DFA Dimensional Fund Advisors and author of the new book Stay Comp. David, great to see you. Thanks so much for joining us.
Oh, glad to do it. At my age, I'm glad to be anywhere. — I hear you. So tell us a little bit about uh DFA. What does Dimensional Fund Advisors do and how is it different from other money managers?
Well, we're based on um we're found on the idea we can apply the science of investing and by that I mean in the 1960s and 70s uh um investing emerged as a science. Before 1960, it was very difficult um to do any kind of serious academic research because the data uh just wasn't there and um computers weren't big enough. And that changed in the 60s and u once they have the data and computers, you know, it unleashed a tremendous amount of research uh over over this last 60 years or so.
Um and they could test for the first time a lot of claims that were made in investing. Um you one of the um first claims was uh managers always gave was yeah sure we can beat the market you know with our genius we can we can out guess the market the market makes mistakes we can find those and uh and make you a lot of money capitalizing on them um turns out that uh was a wild claim but doesn't show up in the data uh you know for the last 60 years I've been doing research on the people trying to out guess the market and it's very difficult to um find a compelling argument.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- investing uncertainty
- behavioral finance
- long-term investing
- diversification
- risk management
Companies and tickers mentioned
- Dimensional Fund Advisors
Watch the episode
Watch “'Stay Calm' Author Discusses the Science of Investing | At Barron's” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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