Most sensible surveys of peer-reviewed academic evidence will conclude that investors are best served with low cost, well-diversified investment strategies. Practically what that means for most investors is investing in passive low-cost market access products like index mutual funds and exchange traded funds (ETFs) based on simple commercial indices like the S&P500 for US stocks, the S&P/TSX Composite in Canada or the MSCI EAFE for international stocks.
David Booth co-founded Dimensional Fund Advisors (DFA) in 1981 because he believed there was a more intelligent way to structure portfolios, applying the latest and best academic research or the “science of investing” to real world applications for the benefit of investors. The success of DFA since then and what they’ve been able to achieve for investors is admirable. Institutional Investor Magazine recently awarded Booth its Manager Lifetime Achievement Award:
“This year’s top money managers and investors were chosen because they know how to make sound decisions based on investment process and original thinking.”
Instead of using simple market capitalization weighted indices, DFA uses other “dimensions” of risk and return to structure portfolios more scientifically. The result is still low cost and well diversified but better structured than simple stock indices to capture returns from sources of risk that can’t be diversified – things like value, size and profitability.
See more about David Booth and Dimensional in his Institutional Investor profile. At Chalten we believe this award is very well deserved and congratulate David on this achievement. (and in case it isn’t obvious yet and for full disclosure, Chalten uses funds from Dimensional Fund Advisors in many of our client portfolios).