It’s easy to forget that the idea of investing in the entire market — passively and scientifically — was once heresy. But as listeners quickly learn in David Booth’s conversation with Larry Siegel on the Financial Thought Exchange, it was this very heresy that upended the investment industry over the last four decades.
Booth, co-founder of Dimensional Fund Advisors (DFA), didn’t set out to change the world. In fact, he left academia precisely because he didn’t want to be the guy inventing new theories. His talent, he realized early on, was applying the breakthroughs others had already made. That insight, along with his time spent in the halls of the University of Chicago surrounded by future Nobel laureates, set in motion a movement that would redefine how portfolios are built, markets are understood, and investors are served.
As the CFA Institute Research Foundation celebrates its 60th Anniversary, Booth’s story serves as a powerful reminder of what rigorous, applied research can achieve. The revolution in finance that he helped catalyze — rooted in empirical evidence, academic collaboration, and a deep respect for markets — mirrors the Research Foundation’s mission to advance the frontiers of investment knowledge.
Booth’s conversation with Siegel exemplifies how research doesn’t just inform theory — it shapes industries, builds institutions, and transforms investor outcomes. With some help from our AI tools, I summarize some of the key talking points. But consider this to be a preview. There’s so much more — from Booth’s early brush with Milton Friedman to behind-the-scenes stories about building DFA and navigating decades of market change. Listen in for the full story: Part I and Part II.
The Data That Changed Everything
In the mid-1960s, the finance world was experiencing a paradigm shift. For the first time, thanks to advances in computing and newly available datasets from the Center for Research in Security Prices (CRSP), researchers could empirically test investment ideas. Booth, then a PhD student under Eugene Fama and a classmate of Roger Ibbotson’s, watched as the myth of consistent manager outperformance began to crumble under statistical scrutiny.
Most investors didn’t know what the market returned, let alone how to beat it. When early data studies showed equities had historically delivered more than 9% annually, many were shocked. Trust departments at institutions couldn’t come close. Active managers were exposed. “We suddenly had a science,” Booth said. “We could test what worked and what didn’t.”
And What Didn’t Work? Most of the Industry.
What emerged from this upheaval wasn’t just a critique of active management but a roadmap for how to invest better: embrace the market, avoid unnecessary costs, and be flexible. Booth’s work at Wells Fargo, under the influence of pioneers like Fischer Black and Myron Scholes, gave him a front-row seat to the birth of index investing. But he also saw its shortcomings: mechanical rigidity, inefficient trading, and missed opportunities. “These were wild times, new ideas springing up everywhere.”
So when Booth launched DFA in 1981 with Rex Sinquefield, they didn’t simply replicate the market, they reimagined how to access it.
DFA’s breakthrough was to build broadly diversified portfolios, especially in underrepresented segments like small-cap stocks, but don’t be slavish to the index. Use data to guide structure, use judgment to trade intelligently. Booth called it “flexibility with discipline” — a philosophy rooted in academic evidence but tempered by market practicality.
This was the birth of factor investing, though the term didn’t exist at the time. Academic studies (Rolf Banz on the small-cap premium, Fama and French on multi-factor models) provided the foundation. DFA built portfolios around size, value, and profitability long before those terms became industry buzzwords. Booth and Sinquefield weren’t chasing alpha. They were building access to dimensions of risk that had been shown to matter.
Brutal Beginnings
And yet, the early years were brutal. Small caps massively underperformed large caps through the 1980s. DFA’s flagship fund lagged the S&P 500 by hundreds of basis points per year. Most firms would have folded. DFA didn’t. Why? Because their belief wasn’t rooted in a bet; it was grounded in theory and data. “How do you survive?” Booth asked. “You go back to the fundamentals. You believe in diversification. You believe in markets.”
Then came the second big reveal — the advisor channel. It would quietly reshape the industry from the ground up. But to hear how it unfolded, and who set it in motion, you’ll have to listen to the podcasts.
Asked for advice to young professionals, Booth provided a framework: embrace uncertainty, find your comparative advantage, and build something you want to own if it works. He sees huge opportunity in financial advice, especially as technology lowers the cost of personalization. “People don’t want robo-advice,” he said. “They want to be heard. They want someone to help them connect life to money.”
Booth’s story is a case study in how research, applied with conviction and creativity, can build enduring value. As CFA Institute Research and Policy Center marks 60 years of the Research Foundation — and 80 years of the Financial Analysts Journal — this conversation is a timely reminder of what that mission looks like in practice. The lessons may be rooted in the past, but their relevance for investors, advisors, and entrepreneurs today is undeniable.
The best part? There’s still more to Booth’s story. Listen to the full conversation for the personalities, turning points, and off-the-cuff moments that didn’t make it into this summary.
