David Booth, chairman and co-CEO of Dimensional Fund Advisors and benefactor of The University of Chicago Booth School of Business, sat down with UCLA Anderson Dean Judy Olian for a Dean’s Distinguished Speaker Series talk this morning.
In comments preceding the Q&A, Booth counseled students on leadership, management principles and principles learned by experience.
Booth said leadership is about several principles. “Leadership is about achieving most of what’s achievable based upon your goals and available resources,” he said. Further, he said leaders need to have the vision that is the essence of any company, but that they need to be flexible about that vision as the company evolves. With that in mind, he said, “Part of leadership is being able to charge full-speed ahead without knowing exactly where you're headed.” That might require what he termed creative destruction, or the ability to discard or improve things that you’ve been doing. Finally, he said a leader must train people to accept outcomes as they are. “A lot of things are outside of your control,” he said.
Speaking of his time in business school, he said there were four principles that have ben especially helpful as head of his own company: comparative advantage, consumer surplus, profit maximization and the principles of the demand curve. But, he also pointed out real-life examples where theory meets reality and how the two are reconciled. He also noted a leader needs to recognize that tension and be wary of too much formalization. “You want people to be entrepreneurial,” he said. “For instance, unless it’s a very large expenditure, allow people to make decisions and then figure out if they make sense at the end of the quarter.”
Booth said that DFA was founded on the idea that science was the best way to invest. But he said, “One part is the science of investing, the other part is implementation.” Nobel Prize-winning Economist Eugene Fama is on DFA’s board, and his theory of the efficient market is a key link in DFA’s strategy. “If you look at the last ten years, fewer money managers than expected by chance have beaten the market,” he said. “People just don't believe they can't beat the market. We all have hunches. I have hunches. I'd be glad to share them, but I don't know why anyone would want to trade on my hunches.”
After several questions from Olian and students, the discussion ended with Booth tackling the ways in which behavioral economics relate to the idea of the efficient market. Booth said DFA uses behavioral ideas all the time. “Behavioral economics tells us a lot about how we should present fact to clients. It answers, ‘How should we educate people?’ And it informs how we present our materials.”
Head to the DDSS homepage for more on Booth and other past speakers.
Comments