Masters in Business: A Fireside Chat with David Booth and Eugene Fama

Masters in Business: A Fireside Chat with David Booth and Eugene Fama

bloomberg interviews fama and booth

Chicago Booth has a longstanding tradition of bringing in leaders to share insights and experiences. Last week, the Chicago Booth Distinguished Speaker Series invited the community to a fireside chat with legendary investor and Chicago Booth’s namesake, David Booth, ‘71, as well as Professor and Nobel Laureate Eugene “Gene” Fama. Dean Rajan provided a captivating introduction and Bloomberg columnist, Barry Ritholz, moderated the conversation, which provided an entertaining and illuminating deep dive on the nature of Booth and Fama’s relationship, as well as their thoughts on the evolution of investing over the years.

Before I share my key insights from the chat, I’d like to provide some historical context to the nature of Fama and Booth’s relationship. Gene Fama is affectionately known as the Father of Modern Finance due to his empirical work on portfolio theory, asset pricing, and the efficient market hypothesis. His early work involved designing schemes to beat the financial markets. He recounts the turning point in technology when computers allowed information to spread much more quickly and enabled statisticians and economists to track the stock market. He eventually went on to earn his MBA and PhD and become a professor at Chicago Booth, where he met a rockstar student, David Booth.

David, who co-founded Dimensional Fund Advisors (DFA) in 1981 based on principles he learned in his coursework at Chicago Booth, recalls how the class he took with Gene 50 years ago was transformative and life-changing. He felt that efficient markets was enormously useful and it gave him a public purpose to improve people’s lives. David rose to the top of the class and eventually became Gene’s teaching assistant, and the relationship between these two legends would begin here.

David and Gene shared a certain belief in markets and how they work based on learnings from Chicago Booth. Gene would consume research and come up with cutting edge theories and David was always looking for opportunities to apply all the ideas. When David launched  DFA, he brought on Gene as an investment advisor, focused on injecting new research ideas and thinking into the company. David remembers saying to Gene, “You do what you do and we’ll figure out if we can make something out of it.” To this day, all of the independent directors at DFA have taught at the University of Chicago.

The true value of this discussion was the candidness in which David and Gene spoke. David gave us an inside look into the early days of DFA when it was operating on a shoestring budget out of his apartment in Brooklyn Heights. He recounted a story about when he needed to expand his operations from one telephone line to about six or seven and the New York telecom company mistakenly thought that he was a bookie. (Spoiler Alert: After setting up the phone lines, that same New York telecom company became a DFA client.)

David also discussed the motivations behind his 2008 transformational gift of $300 million to Chicago Booth, which came during an economic crisis. It was never his intention for it to be a naming gift, he simply felt that he was at a point in his career where he was able to give back to the institution that gave him everything. The gift positively impacted the school in significant ways, giving rise to new research centers and contributing to a future that felt assured.

Gene shared many entertaining stories during the conversation. One of the many notable memories was receiving his Nobel Prize phone call at about 5 or 6 am and how, just 10 minutes later, reporters were outside his door. It’s worth noting that, even with such momentous occasions, Gene  has never missed teaching a class in 50 years.

Gene also had some interesting thoughts on behavioral finance and economics. He believes that behavioral finance is simply a criticism of the efficient market theory, but without evidence. Gene is great friends with Richard Thaler, who was awarded the Nobel Prize in 2017 for his contributions to the field of behavioral economics. True to Chicago Booth’s celebration of diverse thought, both Nobel Prize winners contend that they agree on the facts of market dynamics but disagree on the interpretation. You can find a deeper discussion between Gene and Richard on whether markets are efficient on the Big Question, a monthly video series from the Chicago Booth Review. 

The conversation closed with some thoughts on the value of a Chicago Booth education and the future of the school. Both men agreed that MBAs are incredibly valuable to society and make lives better for people in their respective industries. Their personal motivations have been to create better and safer financial products with lower fees and better controls. They remind the audience, mostly made up of Chicago Booth students, to find purpose in our work and take pride in what we accomplish. When it comes to the future of Chicago Booth, Gene sings high praises for the outstanding faculty and the rigor that has been applied to the disciplines of marketing, accounting, and statistics. David ends the discussion by saying, “Wherever Booth goes, it will be important.” We agree with him.

Click the link to watch the full stream of the conversation.