0:02

This is Masters in Business with

0:04

Barry Ridholts on Boomberg Radio.

0:07

This week. I was privileged to travel to the

0:09

University of Chicago to the Booth School

0:11

of Business, where I got to sit down

0:13

with Eugene Fama, Nobel Laureate,

0:16

Chicago Booth School of Business UM,

0:18

founder of the Efficient Market hypothesis,

0:22

creator of effectively the

0:24

three, five and seven UH

0:26

Fama French factor model, basically

0:30

the father of modern finance. I don't know how else

0:32

to describe him, along

0:35

with his best student,

0:37

David Booth, co founder of

0:39

Dimensional Funds, the person that

0:42

the Booth School of Business is named after.

0:45

What can I tell you? I flew out to Chicago.

0:48

UH basically went to the

0:51

Booth School of Business at the University of Chicago

0:54

where they were celebrating this

0:56

relationship that both Fama

0:59

and Booth have had for literally

1:01

fifty years. I got to sit

1:04

down with the two of them for an hour in front

1:06

of about five people in the audience,

1:08

including a lot of students from the Boost

1:10

School as well as other

1:12

notables who were in attendance. And

1:15

Fama is notoriously press shy.

1:18

He does not do a whole lot of

1:20

UM interviews with the media.

1:23

This was just a delight. I can't begin

1:25

to say how just awesome

1:28

he was. He's a provocateur.

1:31

He likes to say things that are very much,

1:33

um contrarian. He's a little bit

1:36

you know, if Farma was on Twitter,

1:38

he would be a troll. He loves to tweak

1:40

people, especially his buddy and

1:42

fellow Nobel laureate Richard Taylor. Uh.

1:45

He was busting his jobs about

1:48

behavioral finance, basically

1:50

saying it's all just pushed back to the efficient

1:52

market hypothesis. Uh. David Booth,

1:54

also very insightful, had a lot of things

1:56

to say. There's obviously a tremendous

1:59

amount of respect at between the two of

2:01

these guys. I could babble

2:03

about my experience in Chicago

2:05

for hours, but rather than do that, why

2:08

not just say my conversation

2:11

with Eugene Vama and David Booth.

2:14

There is so much material to cover.

2:16

We're gonna keep this to about four

2:18

hours. We'll take a break for dinner, and

2:21

then we'll finish up before midnight. Um.

2:24

So I really don't have to introduce

2:26

either of these gentlemen, but let me just

2:29

put a little more flesh on the bones

2:31

of what what the Dean started

2:33

with. Obviously, Jean is best

2:36

known for not only the efficient market hypothesis,

2:39

but his research on portfolio theory,

2:41

asset pricing, the Fama French

2:43

factor models. He is recipient

2:47

of the Nobel Prize in

2:49

in Economics, and I like the

2:51

sentence that the Nobel group

2:54

used quote for stuff for

2:56

his work showing quote stock price

2:58

movements are impossible to predict

3:00

in the short term and that new information

3:03

effects prices almost immediately, which

3:06

means markets are efficient. David

3:09

co founded Dimensional with another University

3:11

of Chicago alum, Rex Sinquefeld

3:14

in one The firm now

3:16

employees four hundred people

3:18

who helped manage five hundred and seventy

3:21

nine billion dollars over

3:23

the twenty years ending in twenty

3:25

eighteen. Eight of

3:27

dimensionals equity and fixed income funds

3:30

beat their benchmark the rest

3:32

of the industry just seventeen

3:35

and that's based on much of the work

3:38

that Professor Fama did.

3:41

So so let's jump into the history

3:44

um of both Gene and David and see

3:46

where it goes. Jeane, during

3:48

your last I feel weird calling you Gene.

3:50

It really should be Professor Farma, shouldn't it Um?

3:54

During your last year toughs. You worked

3:56

for Professor Harry Ernst who

3:59

had a light gig running

4:01

a stock market forecasting

4:03

service, and you did research

4:06

for him. What sort of work did you

4:08

do with this stock

4:10

forecasting research? I was

4:13

devising schemes to beat the market, and

4:16

how did that work out? Worked out fine? And

4:20

on the data that I fitted to didn't

4:22

work out fine on the whole load sample never

4:25

did So that was a lesson that

4:28

data judging continn of things that aren't really

4:30

there. And how did

4:32

that research into forecasting the

4:34

stock market impact your thinking

4:37

about whether or not the market could be be well?

4:40

When I came here to Chicago,

4:43

uh, research on asset

4:46

prices had again to get

4:48

going in really serious way, and

4:51

many people were interested in the question

4:53

of how well stock prices adjusted

4:55

to new information. Put

4:58

in context, they always say it started

5:00

because of computers. Before

5:04

really didn't have a serious computer too

5:06

do data analysis on. And with the coming

5:08

of computers, statisticians

5:11

economists were they

5:13

had a new toy too to play with and stock

5:16

stock prices were easily available, so

5:18

that was one of the first things they started to study.

5:21

And then immediately the economists said, well,

5:23

how do we expect prices to behave if

5:26

the world was working properly, in other words,

5:28

if markets were efficient. They weren't using that term,

5:31

but that's what they were after, and

5:33

they were all kinds of theories

5:35

proposed. They had lots of

5:37

shortcomings to them, and

5:39

a little bit of time we came to the

5:42

efficient market hypothesis. And

5:45

you were in your senior year Toughs.

5:47

You had applied here, but you never

5:49

heard back from the school. Is this an urban legend

5:51

or is this true? So

5:54

what happened? I called? I

5:57

called in uh the Dina

5:59

students toff at Keff answered,

6:02

that wouldn't happen today. The school is so

6:04

much bigger. The dean students doesn't even have a telephone.

6:07

Way too important for that. So

6:10

he answered the phone. We chatted for a while and he said,

6:12

well, I hate to tell you, but we don't have any

6:14

record of your application. So what kind of

6:16

grades do you have at Toughs? And I said

6:18

pretty much a lazy. He said, well, we

6:21

have a scholarship for someone from Toughs. Do you want

6:23

it? And

6:25

then that's how that's how I ended up at the University

6:28

of Chicago. So

6:30

so you come here as a student you're you're

6:32

finishing your work. Eventually, Martin

6:34

Miller says to you, Hey, do you want to stick

6:37

around and keep doing the sort of research you're

6:39

doing? Is that how you became a

6:41

professor here? Yeah?

6:43

I was. I had offers

6:46

that some other places, um,

6:48

but lots of the places

6:50

turned me down. They said it was to Chicago. I

6:54

don't know what that meant actually, but

6:59

but uh, it was very

7:01

rare to hire somebody from your ound

7:03

PhD program onto the

7:05

faculty. They're only gonna one or two before

7:08

there. So, David, you had

7:10

a somewhat different experience. You grow

7:12

up in Kansas, you get a b a in economics

7:15

and a master's from the University of Kansas.

7:17

What made you decide to come to Chicago.

7:20

Well, I did a little bit of reading um

7:23

in finance um and

7:27

um my had a finance professor

7:29

there that gotten his PhD here,

7:31

and he said, finances

7:34

exploding really emerging

7:36

as an academic discipline. It's

7:39

really one of the the epicenters is

7:41

clearly Chicago. And

7:43

so I thought, well, I, God, I should be fun, maybe

7:46

be a professor. So I applied here. Uh.

7:49

Um, Yeah, I started

7:51

to stay, took jeans class my very first

7:54

class, and is was the Dean Correct?

7:56

Was that literally fifty years ago? Fifty

8:00

years ago this fall? It was. Yeah,

8:02

it was the first year

8:05

that Chicago had a football team in thirty

8:07

four years. And

8:10

you had written about your experience taking

8:13

a class with Gene. You called it um

8:16

life changing and transformative.

8:19

In what ways was it life changing? Well?

8:21

Life changing led

8:24

to a career. I mean, I can't have much

8:26

of a bigger change than that, but

8:28

it's um life changing.

8:30

And then I think everybody

8:33

here probably UM, I would like to think

8:35

of themselves UM

8:37

having a public purpose. At the end of it

8:39

all, when you get to be my age, you want

8:42

to look back and I think somehow the world

8:44

was better off for your having been here.

8:47

And so these ideas

8:49

that were coming out, you know, the

8:51

essence of efficient markets, it was already

8:55

well developed. He had already coined the term

8:58

UM. And you just said, this is

9:00

enormously useful. If you look at the way

9:03

money was managed fifty years ago, people

9:05

are getting ripped off. I mean, fees were way

9:07

too high. You know, the commissions were

9:09

fixed by the government, uh at about

9:12

ten times what they are today, and uh

9:14

we forth it's free today.

9:17

So it's a lot more

9:19

than ten x yeah. Yeah, yeah,

9:21

So it's um. I think there

9:23

was a spirit of that

9:26

we can improve people's lives, you

9:28

know, a real purpose to all of

9:30

this. Gene um

9:33

more on the research side, and I've

9:36

thought my role in all this would be

9:38

more on the application of

9:40

the ideas. So you become

9:43

Jane's teaching assistant. How

9:45

did that come about? I

9:47

always I always picked the student

9:49

in the class in the previous year

9:51

to be the teachers good student. It's

9:54

the best of the class. You

9:57

don't have to laugh at that. I mean, so

10:02

best student, professor

10:04

Farmers teaching assistant. Why not a career

10:07

in academia. Well, first

10:10

off, I realized I could never compete with gene

10:12

I mean when you're at the top of the

10:14

mountain. Um.

10:16

But it's really something. It caused

10:19

me to reflect and you know, really internally

10:21

and what what am I about? What do I enjoy?

10:24

And I

10:27

I just saw this as a great opportunity to go out

10:29

to apply all these ideas people

10:31

were developing. Every new paper coming

10:33

out was a landmark paper. It was it

10:35

was all brand new stuff, and uh,

10:38

none of them was being applied. So we're

10:40

gonna come back to the application very

10:42

shortly. But you mentioned that

10:44

all these new ground baking, groundbreaking

10:47

papers were coming out. Professor

10:50

Farmer, your doctoral thesis in four

10:53

was the behavior of stock market

10:55

prices, And this sentence

10:58

jumps right off the page quote

11:00

chart reading, though perhaps an interesting

11:03

pastime, is of no real

11:05

value to the stock market investor. So

11:08

this gets published in the Journal of Business in

11:10

nine. What sort

11:12

of pushback do you get to the general

11:14

concept that UM

11:17

charts are of no use past market

11:21

walk is of no future predictability

11:24

to what happens going forward. You got a

11:26

lot of a lot of pushback from the professionals.

11:29

The academics looked at the data, looked

11:31

at what people were saying, what they were

11:33

showing, and adopted it right away.

11:35

I mean, there was no prospect among the

11:37

academics. Really, it's really the beginning

11:39

of I mean, if you had to summarize

11:43

really impact of all this is UM

11:46

what was going on in Chicago then really

11:48

changed the way people think about

11:51

investing. And that's really been the theme,

11:54

and Jen has changed the way people think

11:56

about investing more than that's that's

11:58

the pre and post law line, pre FAMA

12:01

and post Fauma there's a

12:03

ce change. I don't like the postframa

12:06

business meaning

12:12

meaning post publication of

12:14

your way. So

12:17

we not only have your doctoral thesis,

12:19

we have the efficient market paper.

12:22

We have the FAMA French three factor

12:24

paper. There are a number of very

12:27

very influential papers that

12:29

David, if I'm hearing you correctly, you're

12:32

saying that changed the

12:34

firmaments of finance forever, changing

12:36

it forever and for the better. I mean,

12:38

I get particularly, and there's

12:43

among students there's this kind of antipathy

12:45

towards finance and economics, you know,

12:48

and they don't realize how much

12:51

UH finance has changed

12:53

for the better. People's lives have been

12:55

improved by these ideas in this research,

12:58

lower fees, better of risk control, and

13:01

so forth. So

13:03

so let's let's compare

13:05

then and now a little more specifically,

13:08

and we'll start by talking efficient markets.

13:11

Back in the days when active managers

13:13

were dominant, inefficiencies

13:15

could still be easily found, as

13:17

could to percent fees. Professionals

13:20

didn't believe markets were efficient. They

13:23

thought they were kind of sort of eventually

13:25

efficient. I doubt many

13:28

of them would say that today, what

13:30

do you think has changed to bring

13:32

so many people over to the efficient market

13:34

theory, well, the

13:37

accumulation of of performance

13:40

evidence. So back then there wasn't

13:42

there was no real evidence on how these

13:44

people did. Uh. And one

13:47

of the first papers was like Jensen's thesis,

13:49

which studied

13:51

new toral funds for the previous

13:53

twenty five years and so that

13:56

basically they weren't beating the market. Uh.

13:59

And now we know

14:01

on hindsight that in fact that has

14:03

to be true that active

14:06

management is a zero sum game before

14:09

cost because they don't

14:11

they can't win from the passive managers because the

14:13

passive people hold cap weight portfolios.

14:15

They don't, they don't overweight and underweight

14:18

in response to what the active people do.

14:20

So if there's anybody underweighting and

14:22

overweighting, there has to be another active manager on

14:25

the other side doing the opposite,

14:27

which means if one wins, the other loses some

14:30

of those is zero before

14:32

costs

14:37

arithmetic of active management. He

14:39

calls it the arithmetic because it is arithmetic.

14:42

It's not a proposition. It has to

14:44

be true for everyone, or there's an offsetting

14:46

loose. So what

14:48

about technology, how does that impact

14:51

how fast information

14:53

makes its way into prices? It

14:55

should make it better, Uh,

14:58

but you know, truth is, prices

15:01

are so volatile. Markets

15:04

have always looked really efficient. They

15:06

don't look anymore efficient than they

15:08

and they ever have with the introduction of

15:10

all the technology. So

15:13

if information is spread much

15:15

more quickly now than it was fifty

15:17

years ago because you have so many sources and

15:19

they're so quick, but you

15:22

can't really see in the data that that's

15:24

had a quantum effect on

15:26

the adjustment of crisis to information. So

15:30

we may not be able to see it explicitly in

15:32

the data. But when we look at

15:34

things like hedge fund performance, they

15:37

did very well before the financial crisis,

15:40

since then not as well. We

15:42

look at the money flows away from

15:45

expensive active towards

15:47

inexpensive passive, it

15:49

sounds like lots of investors

15:51

are voting with their dollars that, hey,

15:54

the market is efficient and we can't beat it.

15:57

Doesn't it seem like technology is dry

16:00

having some of that Because there

16:02

used to be information asymmetries. There

16:05

used to be inefficiencies that a

16:07

savvy manager might have been able to

16:09

find. It sounds like it's even harder

16:11

to find those inefficiencies today

16:14

than thirty years ago. Um,

16:16

Hey, you have better information than I

16:18

do because you're saying,

16:21

so it's always looked, it's always

16:23

been that, it's always been zero

16:25

sum game. I've been in the business

16:28

now almost fifty years, and every

16:30

year people say, next year is gonna be the stockpickers

16:32

stockpickers market? Well Gene saying

16:34

is it's arithmetically impossible.

16:38

So so let's talk a little bit about index

16:41

funds. Gene. You introduced

16:43

David when he is finishing

16:46

his NBA and wants to go out into the world of

16:49

work, to John McGowan over at Wells

16:51

Fargo, where they were developing

16:53

as an institutional product, the

16:56

first index fund. What

16:58

made you think that that was a good fit for

17:01

for David mac

17:03

mcclown, who was in charge

17:05

of the Wells Fargo unit, came to

17:08

well the seminars we did here for business people,

17:10

we didn't twice a year, the Center for

17:12

Research and Security Prices were in seminars for

17:15

interested business people and Mac

17:17

came to all of them

17:19

and he seemed very you

17:22

know, into the new stuff. And

17:24

so when it came down the David

17:26

said, I see what you do, but I don't want to do it as

17:30

an academic. So I called

17:32

Mac and said, I have a really good student

17:35

here if you've got a place him and he did.

17:38

So what was your experience like it? Wells Fargo

17:40

working on that index one, Well, there was a terrific

17:43

experience, great exposure. I

17:46

learned the importance of a

17:49

client work. I mean investment

17:51

businesses part technology

17:53

or investment science, and it's part

17:56

client work. And as

18:00

I've told Jean, you know, I studied finance

18:02

for two years, I've been studying client

18:05

work at the last

18:08

you know. And that was we uh, we

18:11

were so naive about dealing

18:15

with clients and what they would be interested in, and

18:18

we were so pumped up, jazzed up about

18:20

the ideas. Somehow, um,

18:24

we missed the mark and actually my

18:26

group got it was unsuccessful,

18:29

we got shut down, but they were um,

18:32

the other parts of the bank kept it going. And

18:34

now that little

18:37

project we started end up as

18:39

through various hands, is now a big part

18:41

of black Rock. So so let's

18:44

that's right. It eventually ended up going to Barclays

18:46

and then black Rock bis them and now I shares

18:49

I think they're coming up on six or seven

18:51

trillion dollars not to not too

18:54

shabby. Um, but let's talk

18:56

about the application of

18:58

genes theories to the practice

19:01

of working with clients post

19:03

Wells far ago. You decide to open

19:07

the small microcap fund out

19:09

of your second bedroom in an apartment

19:11

in Brooklyn. Tell us how you

19:13

applied Professor Farmers research

19:16

to that microcap fund. Well,

19:18

the first thing is, UM, we decided

19:21

UM not to have UH

19:24

around the portfolio like an index fund,

19:26

even though at first we call it an index

19:28

fund because it's very similar to indexing.

19:31

With the final step being UM

19:34

that we don't trade UH

19:37

market on clothes like many index funds

19:39

do. UM. And what that means

19:41

is we were we would be trading

19:43

stocks throughout the day. Well, that

19:45

created a lot of skepticism, particularly

19:48

among academics, because you're going to the

19:50

marketplace. You know, you don't have any

19:52

undiscounted information. People

19:55

on the other side of your trade, largely institutions,

19:57

think they know a lot about the stock. You

20:00

know, why won't they just rip your eyes out when

20:02

you're trading. That's a that's a quite

20:04

legitimate question. Uh. Well,

20:07

I mean that the answer is there a lot of things you can do

20:10

to use the energy of markets and the power

20:12

of markets to your advantage. It

20:14

turns out, for example, if we want

20:16

to buy a stock. Let's say, um,

20:20

they have an institution wants to sell

20:22

it. Their anxiety is greater than ours,

20:24

so we can use that their interest

20:27

in trying to do a quick trade

20:30

to our advantage and protect

20:32

ourselves. And there's you know, plenty

20:34

of information now floating

20:36

out about the stock that you can use to protect

20:39

yourself. But that wasn't known back then.

20:41

It was just we had a belief in markets,

20:43

belief and and how they work based

20:46

on what we studied here and

20:48

said, look, we think we can go out

20:50

and trade these stocks and not uh

20:53

not get killed that there were

20:56

two pieces done here and it's

20:59

most stuck turns and

21:01

most of the academics said, well,

21:03

it looks good in terms of the

21:05

crisp historical data, but in fact,

21:08

if you try to trade it, you're going to get swamped

21:10

by trading costs. Uh. And

21:13

that was the so called market micro struct

21:15

just stuff. And then we figured

21:17

out what we found out what dimensional

21:19

was, No, he really didn't have to pay those

21:21

big bit ast spreads that you were seeing. You

21:24

could go fewer, was patient trader.

21:26

You could do better with the prices,

21:28

so we could deliver this small stuff premium.

21:32

But previous to that, people weren't

21:35

believes what the academics

21:37

learned was the market micro structure stuff was

21:40

garbage. Basically they didn't really understand.

21:43

Interesting. Um, what we

21:45

learned about clients along the way, which was seeing

21:48

in our

21:50

initial clients were all large, largest

21:53

pension funds, essentially insurance companies

21:55

around the world, and they

21:57

weren't hopening the stocks of small companies. So

22:00

really the pitch we got into

22:03

all this stuff, but we hadn't even easier

22:05

argument, which was, look, you ought to hold

22:07

stocks of large companies and small, and

22:09

you're not holding small, so we'll get you access

22:12

to small. So that was the really

22:14

the sales pitch that put us on the

22:16

map. And so that sales pitch starts

22:18

to take off and dimensional operating

22:21

out of your apartment gets bigger. There's

22:23

kind of an urgent urban legend that

22:26

you called New York Telephone to have them

22:28

add six phone lines and they

22:30

refused. They thought you were running a bookie joy.

22:33

Is that remotely true? Yeah, this was about

22:35

the kind of at the bottom

22:37

of Brooklyn Heights, uh, bottom

22:40

of its history. It's so

22:44

we started on a shoe string and we ran the

22:46

portfolio. Was the first portfolio manager running

22:49

out of my spare bedroom. So I knew

22:51

we needed more phone lights. So

22:53

I called up New

22:56

York Telephone, which was a telephone company

22:58

at the time. So the need, you

23:00

know, uh some telephone lines

23:02

and I know six or eight or whatever, and

23:05

they thought it was a bookie, so they wouldn't give me the lines.

23:07

So I had to call up the Treasure of New York tell say,

23:10

can you send some people down here and give me

23:12

some telephone lines. And they

23:15

went around the whole block and found that there were

23:17

six lines available available

23:20

and the whole block that based on their

23:22

equipment, and they said, okay, you can have those

23:25

six lines. And that's how we got started. And

23:28

the punch line is he becomes a client.

23:30

Yeah, yeah, right, New York that was a clickly became

23:32

a clie down. So so

23:35

from from day one, Gene

23:37

is a board member of Dimensional

23:39

Funds. From the day it launches, well

23:42

even before I mean, we have

23:44

the idea to start the firm. Uh

23:47

uh. My first

23:49

call it was to Gene say, look, you

23:51

know, it's been ten years since I

23:53

was in school. We uh,

23:56

there's been a lot of research, you know, we we needed

23:59

we needed to have access to you

24:01

know, new research and thinking. And

24:04

would you be on the you know, one of the

24:06

founders and and uh and

24:08

and be our list you know, our our

24:10

eyes in terms of research.

24:13

And he agreed to do that right away. Who

24:15

else did you recruit from GSP?

24:18

Well, eventually we found out we had

24:20

to have We wanted to create a mutual fund,

24:22

and a mutual fund has to have an

24:25

independent board of directors. So

24:27

Rex and I went over the Business School, walked

24:30

into Martin Miller's office. They

24:32

still teach mollarble deiply on the theaters, don't take

24:34

Yeah, okay, Uh.

24:37

So Martin was there. We said to you know, he

24:39

added a YadA small company fund need independent

24:41

directors and um and said,

24:43

oh sure. And I walked out the

24:46

door and down the hall and Myron Schulz

24:48

was coming out of his office. I gol Myron, he

24:52

had the YadA. See Gene's

24:55

point. Business school was

24:57

a lot smaller then, and having been to the

24:59

pH d program, I got to know

25:01

the faculty pretty well. So Myron

25:04

uh agreed to join, and so

25:06

on and so forth. So in fact,

25:08

until recently, all the independent directors

25:11

of the mutual fund, our mutual

25:13

fund be Uh have taught at Chicago,

25:16

so his his business partner, Reck Singfield,

25:19

was in my class as well. He

25:21

was really the first one to put out an index

25:24

one, wasn't he? No, No, it was but

25:29

but Rex. Actually that

25:31

was when I was his teaching consistent. He took uh

25:35

jeans class. And Rex was always

25:38

uh one of these pain in the neck as a teaching

25:40

consistant students because he was interested

25:42

in everything you know. I'm

25:44

so Jean. You

25:46

moved pretty easily back and forth

25:49

between academic theory and

25:51

real world application of

25:54

theories. Not

25:57

a lot of people were able to bridge that gap between

25:59

academics. Well I hadn't. I hadn't been able to

26:01

bridge it either until Dimentcino

26:03

came along. But here

26:05

it is. It's forty years later, and you seem

26:07

to continue to be right because he Uh.

26:10

The reason they couldn't just because one,

26:13

it's hard to shut me up. I don't take a party line

26:15

too too too easily. And

26:18

he didn't. Ever, He

26:21

and Rex never said would you please

26:23

do this? What they said was, you do what you

26:25

do and we'll figure out if we can use

26:27

any of it. And that fits in

26:29

with the way I work so frequently

26:34

he would come in and say, look, get

26:36

get ready to make a presentation for our clients. They go,

26:39

you know, I don't know what your clients are gonna want to hear this. I

26:41

go, look, Jane, you know, say what's on your

26:43

mind. It's been controls my department, you

26:45

know. And that seems to have worked out.

26:48

So what was your involvement

26:50

with the investment committee in the

26:52

early days of dimensional um?

26:55

Were you participating actively

26:57

in it? Were you managing it? What were you doing?

27:00

Well? I was doing this back and forth

27:02

with the research stuff. But then

27:05

they started a fixed

27:07

income fund based on fixed income research

27:10

they had done in the seventies, and

27:13

they said, do you want to come in and trade it for a

27:15

day? And I said, sure, I remember traded

27:17

anything. So

27:20

I went in. I know how much money did we? Here were ten million

27:22

dollars from somebody and I managed

27:24

to buy twenty million dollars of bonds and

27:28

that was a big problem. Actually, so

27:31

waitwa, Gene Fama day

27:33

trader. I just want

27:36

to make sure that that was the last day.

27:40

But I couldn't see the problem,

27:46

that's right. Um, So you introduce

27:49

the Fama French paper on value

27:53

dimensional funds, introduce as a US large

27:56

value and you are small value. In

27:58

ninety three on another farm of

28:00

French paper leads to international

28:03

value coming out in that

28:06

paper won a Graham and Dot Award of Excellence.

28:09

Was there anyone else trying to apply

28:11

this sort of academic research to

28:13

either investing theory

28:16

or the creation of investable products

28:19

on the market? There they're always kind of um.

28:23

Departments of big banks and people were kind

28:25

of playing around with it. But we were

28:27

the only ones willing to stand up and say, um,

28:31

this is what we believe and this is

28:33

what we think you ought to do. Um.

28:35

Now they're we have all the

28:37

quant managers out there. We got tons of people

28:40

uh uh out there, you

28:42

know, trying to apply the same data.

28:44

And back then we basically were at In

28:47

fact, I often go around and show people

28:49

thirty year track record on the various funds

28:51

UM and

28:53

I go, you know, we had a lot of competition

28:55

back then, but they don't seem nobody seems

28:58

to have a thirty year track record.

29:02

They did not survive long enough to So

29:05

let me fast forward, um a couple

29:08

of decades to the mid two thousand's.

29:10

In two thousand and eight, David Booth

29:12

made the largest donation ever given

29:14

to a business school, which

29:16

has been called a transformational

29:19

gift. Tell us about your

29:21

thinking. What made you decide in

29:23

the middle of the financial crisis

29:25

to say, I know, I want

29:27

to make a donation to my alma

29:30

mater. Well, it was I'm kind

29:32

of ties into the story I was talking about earlier. I

29:34

mean, what, Uh, it got

29:36

to be the stage where it was time to pay back, and

29:39

um, I

29:41

mean I wouldn't been anywhere

29:43

without Chicago. So

29:46

I said, I wanted to give a big chunk of what

29:48

I have and uh, um,

29:52

this was a mix of stocks and cash,

29:54

Is that correct? And it was actually,

29:57

Um, I didn't have a lot of cash at

29:59

that time. It was because

30:02

we just recently

30:05

started to accumulate the money big

30:07

enough to but I had stock in

30:09

the firm, and so I gave him

30:11

basically ownership of a

30:14

big chunk of the of the stock that I

30:16

had, and they were

30:18

willing to take a bit on that. And

30:20

it turned up to be a convet and that

30:23

that comes with a dividend which continues

30:25

to pay its way to uh to

30:28

booth. Were you at all

30:30

concerned that you were right in the middle of

30:32

a financial crisis giving

30:34

ownership of a financial firm. A

30:37

lot of firms did not make it

30:39

through the financial crisis. Yeah, maybe it ties

30:41

in with the earlier question about what I learned

30:43

from here about markets and how they work,

30:46

and you have to kind of keep in the

30:48

depth of the financial crisis. It kind

30:50

of had to keep reminding people. You know,

30:52

markets are where buyers and sellers come together

30:55

and in a voluntary transaction, both sides

30:57

of a trade have to feel like they have a good

30:59

they got a deal, or they don't trade. They don't trade.

31:02

So you know, there's a lot of trading volume activity

31:04

and a lot of well known investors

31:06

investing, and it's just you

31:08

know, one of those UM. It

31:11

was comfortable those markets were functioning the way

31:13

they ought to function. Sometimes

31:15

they go up, sometimes they go down. Gene,

31:17

how did David's gift impact the

31:19

Graduate School of Business? Huh,

31:22

it was. It was

31:25

a big lot of cash flow that was not

31:27

there beforehand, so it

31:31

gave rise to lots of research centers.

31:34

I think you made everybody feel

31:36

as if the future is more or

31:38

less assured. UM

31:40

and the university also got a

31:43

pretty good take out of itself, as

31:45

they always do, so

31:48

David, you tell a charming story

31:51

about sitting with the dean and

31:53

you It wasn't your intention for this

31:55

originally to be a naming gift. They

31:57

seem to have brought that up to you. Can you you

32:00

right know? I said I wanted for

32:02

the reasons I outlined, I wanted to make a

32:04

gift a big part of what I have, um,

32:07

and so this is what I want to do. And

32:10

the Dean, Ted Snyder at the time, said we

32:13

were looking to have a naming gift

32:15

from the business School. This is a lot better deal than

32:17

that what we're looking for, So we'll

32:19

name the school after you. Okay,

32:22

whatever you know. So

32:28

since then the school has continued to

32:30

grow in in both reputation

32:32

and number of students and the offerings

32:35

here. Um. And then fast

32:37

forward, uh, five years after

32:39

that, Jane gets a phone

32:42

call from Sweden. Let's talk

32:44

a little bit about that. What was your

32:46

experience like, Uh, did the

32:48

phone call manage to reach you? Tell us? Tell

32:51

us what that was like? Well, they think

32:53

they call it early the morning

32:57

Stockholm time, which is

32:59

really really in the in here. It thinks about five or six

33:01

o'clock. So I

33:03

don't know. You never expect to get it, because a lot

33:05

of people could qualify to to get

33:07

it when you get it. Somehow, Pete

33:10

they the people he somehow had

33:12

I guess or whatever. I don't know why, because they were

33:15

newspaper people at my door ten

33:18

minutes later after after

33:20

the call and they wanted to come in my house.

33:25

I said, no way, you're

33:28

class. Well, I had a class that morning, and

33:31

you don't. You don't get a special dispensation when

33:34

you could.

33:36

But I had never missed the class in all the years

33:38

I've been teaching in fifty years. Yeah, I

33:40

wasn't gonna start now, so when

33:42

I wasn't gonna let anybody in because the kids

33:44

in the class were paying a lot of money to take that course,

33:48

So no way I wanted people from the outside

33:50

disturbing it. So, David,

33:52

you ended up going to Stockholme with

33:55

Jeane. What what was that experience like? Um,

33:59

well, of course, being Chicago

34:01

trained, I've been to the ceremony

34:03

before with when when Myron and Bob

34:05

Martin got there Nobel, So you

34:07

know it's you're kind of used to this of you so

34:12

third times of charm. Yeah, so

34:16

the uh so, I I said

34:18

to Jane, give me a night, uh to

34:20

organize something special. So I

34:23

talked to Abba has

34:25

a museum in Stockholm that they just

34:28

opened, and I talked them into running me out

34:30

the museum for the evening.

34:32

So Jeane, you know, he has four

34:34

kids and that time about eight grandkids and

34:37

they're all u big music

34:39

fans and so the Abbe

34:41

Museum has a lot of u um um

34:45

things you can do to have fun and um.

34:47

One of them is a big stage with a scrim on

34:49

it and with four Abba

34:52

musicians singing with a microphone

34:54

right in the middle, and so you it looks like

34:56

you're singing with them. And so I looked, so

34:58

this went on. They were the kids, The kids went wild.

35:00

I looked over Jeane like and Sally, and

35:03

I could see that they were they were having

35:05

fun. So it made it special for me.

35:08

So the whole thing some people have described

35:10

as surreal. What was your the

35:13

day of the day after So they

35:15

had a big event here of the school, really

35:18

big event, I mean news

35:20

and everything. The circles

35:24

around the building, we're all full of students

35:26

um. And the next day

35:29

the Nobel people have a camera committee there

35:32

following me across the

35:34

Harper Center, the big

35:36

hum in the middle, and students

35:38

are working on on the sides, and we

35:41

worked down the middle. Nobody looks up. So

35:45

we get to the other side, and the television

35:47

guy says, nobody looked up when I said, this

35:50

is the University of Chicago. If they had to look

35:52

up every time I nobil fries when I walked right,

35:54

get nothing done. And

35:58

and to show you how true that

36:00

is, David Booth and Gene

36:03

and I get an elevator on

36:05

four to come down here, and a student

36:07

gets in wearing headphones, turns

36:09

around, doesn't say a word to either of you, and

36:12

the four of us wrote down in silence. He was completely

36:14

oblivious to who was in the elevator

36:17

with him. So I'm always fascinated

36:19

by that sort of stuff. So

36:22

so let's let's talk a little

36:24

bit about um some other

36:26

things that you've written about, and the

36:28

two of you have applied. One

36:30

of the quotes of Professor Farmers that I enjoy

36:33

is quote, why is anyone

36:36

even reading Wall Street Research? Unquote?

36:39

So I have to ask you, why do people

36:41

read Wall Street Research? I

36:43

don't know. It's

36:47

it's businessman's pornography, basically

36:49

business based pornography. It's

36:52

not the real thing. It's

36:55

not the real thing. Okay.

36:58

Um, so

37:03

let's talk a little bit about value. I'm gonna

37:05

try and realist. Let's

37:08

talk about value and growth. Value

37:11

has a tendency to go through these longer

37:13

periods where growth is beating

37:15

it. And over the past decade it's

37:17

been if you weren't in big cap

37:20

us growth, um,

37:22

you were underperforming. Everything has

37:24

been um the SMP five

37:26

hundred. When we look at emerging markets, we

37:28

look at small cap, we look at value. Heaven

37:31

forbid, you're an emerging market small cap

37:33

value. It's been terrible. What

37:36

sort of lessons should investors take

37:38

from this extended period of growth

37:40

growth beating value? Well, the

37:43

question they want to ask is as

37:45

value dead? Okay,

37:47

let's Kennan.

37:50

I actually were reading a paper on this at the

37:52

moment. But the bottom line

37:54

is there's so much volatility in these

37:56

premiums that you can't tell if the premium

37:59

is teamed or not. It may

38:01

have changed, it may not. You just can't tell

38:03

us. Let's see a wholl within the range of

38:05

chance experience that the

38:07

poor return experiences well within the

38:10

range of chance over the time that's

38:12

that it's occurred. So you really can't

38:14

say anything. So

38:16

so there have been other periods

38:19

of time where value is done poorly.

38:21

I remember hearing in this

38:25

value investor was washed up, this guy named

38:27

Warren Buffett. He doesn't know what he's doing.

38:29

And typically when you hear that,

38:31

it's usually at the ends, towards

38:33

the end of that period of underperformance. Um,

38:36

you're suggesting we won't know for

38:39

some period of time if the value

38:41

premium is gone or if it's just a regular

38:43

cyclical underperformance. I

38:46

don't think there are real cycles to it. I

38:48

think it's just kind of random that go

38:50

through good in bed periods,

38:53

and you know, you can't recognize them except that from

38:55

the fact you can't really predict

38:57

them. Uh, we've we've

39:00

tried tests, we've tried predictive tests,

39:02

and they have marginal nothing

39:06

worth even focusing focusing

39:09

on. So basically is stuck with the

39:11

volatility of equity returns.

39:13

They don't allow to say very much about what's

39:16

happened to expected returns going forward.

39:19

And and David, what we've

39:21

seen a huge proliferation of various

39:24

factor funds, not just the three

39:26

factor, of the five factor, of the seven factor model.

39:29

They're now hundreds identified. What

39:31

does this mean for investors? Has

39:33

has the proliferation of all

39:36

these new factors been good for investors or

39:38

is it a non event? Well,

39:41

I mean I think on balance

39:43

um UM has been overstated

39:45

and whatever whatever it is the

39:49

you know, I think UM researchers

39:51

identified, you know, factors

39:55

that seem to explain differences in average returns.

39:58

But there can't be hundreds of factor I

40:00

mean, they got it, They're probably at the end of

40:02

the day, they're probably a few factors. Uh

40:04

and Gene and ken. One of the things they try to do

40:06

is instead of trying to identify more

40:08

and more factors, just take the researchers

40:10

out there and can shrink it down

40:13

to simpler, you know, more factors

40:15

that matter, factors that matter, well,

40:17

lots of lots of these things that just different manifestations

40:19

of the same thing. Give us an example.

40:22

So value can be very measured in many different

40:24

ways. I can use the book to market ratio

40:26

you need to catch full at the price. They can use

40:29

lots of different variables, so I identify

40:31

what is basically this same thing. Uh.

40:34

And there

40:36

are thousands of finance

40:38

professors out there who all want to get ten

40:41

here um they have the publish

40:43

to do that. So they're

40:45

all just kind of searching through the data finding

40:48

stuff that maybe there only

40:50

on a chance basis that won't be there

40:52

out of sample. So there's lots

40:55

of work being done and

40:57

it remains to be done on what we call

40:59

robust this. How does this stand up when

41:01

I have new data? So we we've

41:03

always been into robustness in the sense that

41:06

when we found it in the ninety two paper,

41:09

we went back and collected the data back to that

41:11

data started in the sixty

41:14

three We then went back and collected

41:16

the data back to to

41:18

look out a sample, and then we looked at the international leader

41:21

to look at a sample, and so pretty much

41:23

the same thing everywhere. Um,

41:27

now we've had a bad period of this, but

41:29

relative to all of that, it doesn't look that

41:32

doesn't look that serious. And

41:35

I have to ask you a question about

41:37

behavioral economics. Um,

41:40

we're here in Chicago, where we

41:42

could short of call at the birthplace of behavioral

41:45

finance. What do you think about that area

41:47

and what's your involvement with it. Well,

41:52

my good friend Richard Taylor, who

41:55

is the king of the behavioral

41:57

finance people and another Nobel law that

41:59

no one I teach them and say I'm the most

42:01

important person in behavioral finance.

42:04

Are because

42:07

most of the behavioral finance is just the criticism

42:09

of official markets.

42:12

So without me, what have they got? And

42:17

and you and and Dick Taylor are golf

42:20

parts are so do you argue

42:22

across eighteen holes or you know?

42:24

The reality is we agree on the

42:26

facts, we disagree on the interpretation

42:31

um For example, he

42:33

thinks the value premium

42:35

is the result of people's

42:38

misperceptions of what

42:41

accounting information and other information

42:43

looks like. That it's all based on misinterpretation

42:47

of information. Now, if you believe

42:49

that, then you think it should go away, because

42:52

it's possible to teach people that they have these

42:55

these biases are professional managers

42:57

should be able to get past them,

43:00

but they still have emotional reactions

43:02

that sometimes they can't get that.

43:05

That's the thing about behavior lea going elements. What their

43:08

studies seem to show is people

43:10

don't learn from experience. If you're

43:12

stupidly, repeatedly stupid, you don't

43:15

learn. And most people are stupid. I mean, that's

43:18

that's the provisation. Someone has to be on

43:20

the wrong side of that trade. You said it's a zero

43:22

sum, right, So so you guys

43:24

agree more than you than you might realize

43:27

the fact, but not the interpretation.

43:30

But there is no behavioral finance.

43:33

Wait say that again. There is no

43:35

behavioral finance. There's no it's all just

43:37

a criticism of official markets really

43:40

with no evidence. Is

43:45

dick here? I

43:48

think he would disagree with that. So that's

43:50

not so sure because when when

43:52

I put the challenge to him twenty years ago, I wrote

43:54

a paper that said, Okay, now you've

43:57

been criticizing us for the last whatever, it's

43:59

time for you to come up with a theory that we can actually

44:02

test and see if it works or

44:04

not. And what was response? We're still

44:06

waiting. Actually

44:08

you presented that paper at a at

44:10

U c L A at Gene walks

44:12

in and says, all the way over, I

44:14

was thinking about breaking my leg or something. So I

44:17

can catch some sympathy here. And

44:20

to be fair, when Taylor won the Nobel

44:23

Prize, he admitted his

44:25

plan was to spend the money as irrationally

44:27

as possible. So even he even

44:30

he agrees with you on that. UM,

44:33

I wanted to ask about, uh,

44:36

some of your comments on Beta.

44:40

You said beta is dead. Do

44:42

you still believe beta is dead. Well,

44:45

the evidence basically says that

44:47

the relation between averaging tune

44:49

and beta it's too flat to be

44:51

explained by the capitalistic

44:53

pricing model. That's a real shame because

44:56

that model is so simple. Um,

44:58

if it were true, it would really

45:01

be like life,

45:03

a lot simpler in many ways.

45:06

But it just has never worked very well. All

45:09

right, So what we're gonna do now? I

45:11

have more, many more questions. But this

45:13

thing is lighting up, and we have questions

45:15

from the audience. So I'm gonna I'm gonna

45:18

ask a few from this and see, uh see

45:20

where we go from here. Um, let's talk

45:22

about your views on the future of active

45:24

management. Where do you see the industry

45:26

going in ten years? And this is for both of you,

45:29

active management active management, Well,

45:31

it's been shrinking really slowly. So

45:35

when Kenn did his American

45:37

Finance Association Presidents

45:40

did his president speech, what he's what

45:42

he said was one of the things he said was we've

45:45

gone from zero to and

45:48

I think it was about forty years at that time, maybe

45:50

a little more, and since then we've

45:52

gone to like I think it's up to thirty or forty.

45:54

Now that's passively man. So that's

45:56

permeated very slowly through the

45:59

profess Yeah, what where

46:02

it will go from me? Or we'll see and

46:04

and some people have made the argument you

46:06

have to separate active from

46:09

expensive locost active

46:11

is attractive. Obviously this is a

46:13

key tenant at dimensional funds. How

46:16

much of the move away from active

46:18

has really been away from expensive

46:22

I think a big part of it. And

46:24

in fact that a lot of the move to indexing

46:27

is through e t f s and a lot of the a

46:29

lot of that is just a new version of active

46:31

management. Um or managers

46:34

say, look, I don't think I can pick individual stocks,

46:37

but I can tell them sectors of the market, So

46:39

let me buy buy E t f

46:41

s. So it's really kind of confusing as

46:43

to uh, you know what the

46:45

trend has been in active management. But I

46:48

I think active managers

46:50

are resourceful and always compe with

46:52

new ideas of trying to entice

46:55

people with magic with

46:57

magic. So the pushback

47:00

against um efficient market we

47:02

always see this argument. Berkshire

47:04

Hathaway had strong returns in its early

47:07

years as the result of Warren

47:09

Buffett's skill and security selection.

47:11

How given Professor Farmer's comments

47:13

and market efficiency, how can

47:16

this early success be explained.

47:18

So you take you have probably

47:20

a hundred thousand people picking stocks right

47:23

right over a period of time, then

47:25

you pick out the one who does

47:27

the best and impute

47:29

that to skill. The problem

47:31

is, if I have a hundred thousand

47:33

people picking, what's the probability

47:36

that one of them will look extraordinary? Purely

47:38

on a chance basis, You'll you'll always

47:40

have some outliers that look, you'll get a big

47:43

old layer in that in that experiment. But that's

47:45

the way that the newspaper accounts

47:47

run. They take after, they look after the fact,

47:49

and they pick out the winners. So every year, for

47:51

example, they pick out the best performers

47:54

of the last five ten years, and you look at

47:56

the following period. No, no,

47:58

no correlation between past the tay and

48:00

and in fact we've seen the morning store manager

48:03

of the year tends to significantly out

48:05

before underperform in the

48:07

decade once they win manager

48:09

of the decade. But that would surprise me too, I

48:12

would think they'd just be random.

48:14

No, no persistency, In fact, negative

48:16

persistency. We've had the sas in

48:18

that subductative. How much persistence

48:21

is there in performance? The answer is basically

48:23

zero. Zero, and I

48:26

have to the best predictor of future performance

48:28

is FeAs and expenses that you know, it's

48:30

ironic that came out of morning

48:33

Star, that did a big study and

48:35

they sell their morning Star rating and it

48:37

turned out ignore everything else, just

48:39

picked the cheapest fun pretty pretty

48:42

astonishing, right, Well, they come up. I

48:44

think they came out and said came out and said

48:46

there's no relation between between future performance

48:49

and the way we ran things. There's

48:51

another question if it comes out to that, so

48:54

so um. One

48:57

one of the questions that is asked by the room.

48:59

If the mark it becomes truly efficient one

49:01

day, what happens to all the management

49:04

farms? That question assumes

49:06

that markets aren't truly efficient today.

49:09

How do you respond to that? What's

49:13

the evidence? No, I mean I don't

49:15

think it's I think all of it is wrong. So it's

49:18

different. There will still be a management

49:20

business, you just will have very little active

49:22

in it, so that you

49:24

have to have some active investors to make price

49:26

prices efficient. The problem

49:29

is you don't expect them to be professional managers

49:32

because the logic of being

49:34

a good investor is that you should get

49:36

their returns if you don't hand them back

49:38

to other people, you take them back

49:40

and higher fees. You know, that's the human

49:42

capital activity is

49:44

picking stocks or whatever investment

49:46

management. So if you have real skill, you should be charging,

49:49

you should go all the retention should go to you, Naz your

49:51

clients. And and this is for

49:53

both of you. What sort of opportunity

49:56

for out performance do you see in private

49:58

markets given that in for nation,

50:00

in that space is so much more

50:02

opaque than in public markets.

50:05

The problem is there are lots of good

50:07

people studying that, but they hamstrung

50:09

by the lack of good data

50:12

on people who live in people who

50:14

die the fund. You know, the managers

50:16

who live in what self reported.

50:19

It's not like so

50:21

you get you get it. You get a very

50:23

kind of biased set of data on that. But

50:26

you know, it's kind of depends on what into

50:28

that business you go to. If you're looking

50:30

at managers who actually run the

50:33

companies that they buy, they may actually

50:35

be able to add value, but it's management value.

50:37

It's not stuck picking value.

50:40

If they you're picking companies that have a

50:42

good idea but a fully run probably

50:45

you can have a lot of value added in that case. But

50:47

again, if you go to the guy's doing

50:49

it. That's

50:51

the that's the downside of it. They're the ones who take

50:54

all the profits out of it. Well, that's that's

50:56

the logic of human capital, right right.

50:59

And we didn't get to a question before

51:01

I have to ask about

51:04

bubbles. And this goes back to be

51:07

okay, So I don't know how to bleep

51:10

out the word bubbles. But what

51:12

do you mean by okay? So folks

51:15

like Failor and Chiller

51:17

would describe a bubble as

51:20

a period of excessive market

51:22

enthusiasm that leads prices

51:25

to far outstrip their fundamental

51:27

valuation. What's the testable proposition

51:29

here, though, I don't know, can you Well,

51:32

the way I interpret it is you must be able

51:34

to predict the end of it. Bubbles,

51:37

it would be something with a predictable ending. So it

51:39

has to be measurable by a predefined

51:41

set of parameters, and you should be able to

51:43

identify the end of it. So

51:46

if we were to say every time

51:48

that fails the test, I mean, I

51:50

mean you can't. People

51:53

can't identify bubbles that way

51:55

until after the fact. After the fact, it's

51:58

it's easy. But this is famous

52:00

theory around about you

52:02

know, the early origins of market efficiency,

52:05

which home work working, went into the

52:07

faculty lounge at Stanford. He was

52:10

agriculturally uh prices,

52:12

and he showed them chats of

52:15

of of prices, and he said, these were chats

52:17

of commodity prices, and he wanted

52:19

to not see if they could identify bubbles

52:22

and the prices, and every to a man, they

52:24

all could. There were no women. To

52:26

a man, they all could. The problem was

52:28

what he was showing them was accumulative random

52:30

numbers, as those just generated

52:34

uh stuff. So that the message there's

52:36

people see bubbles where there are now h.

52:41

So here's a here's a really broad question.

52:43

Given the societal angst of people attacking

52:46

the value of a business education,

52:49

what is your belief in the value of this

52:51

education booth and how

52:54

should we communicate this better

52:56

to society? Well, I think

52:58

it's it's incredibly

53:01

valuable to society, um,

53:04

because if we are going to

53:06

make lives better for people, part of

53:08

the answer has to come from better and

53:10

safer financial products. And

53:12

just that's the reality. And that's

53:14

been the history. I mean, it's like I say, I

53:17

look back on my career and

53:20

uh working with Gene and you

53:22

know, we've been part of the movement

53:24

towards lower fees and better controls.

53:27

So I can find it irritating when somebody

53:29

says, really, the only advanced the last fifty

53:32

years has been the A T M. You know. Uh

53:35

it's uh qu

53:38

yeah, live, we've

53:40

live based all this work live,

53:43

We've improved lives. Uh, and there

53:45

and other people with sharing the I s we're not

53:47

the only one. But I

53:49

mean, I don't think it gets much better than

53:51

that. And uh so I

53:54

would hate to have people, um

53:56

not to get into business

53:59

or particularly financial services. You

54:01

can have a good career in financial

54:03

services and at the end of it you

54:06

can look back on it and take pride in what you've accomplished.

54:09

It's as simple as that. So so that leads

54:11

to the next question. What keeps

54:13

both of you working? Neither of you have to work,

54:16

Why do both of you still get up

54:18

and go to the office each day. It's fun, it's

54:20

fun challenging, it's

54:23

important. I mean, it's exciting to see

54:26

the retired people living better

54:29

as a result of these ideas, or better

54:32

able to send their kids to colleagues or whatever. I

54:34

mean, these are These are not you

54:36

know, ideas that have no

54:38

importance. I mean, these are you

54:40

know that's you can get behind that kind

54:42

of idea. You get a lot of satisfaction

54:45

out of coming up with stuff people haven't

54:47

seen before. I have been recognized,

54:51

and we have time for one last

54:53

question, and I'm going to go with something

54:55

about, um, what do

54:57

you think the future of Chicago Booth looks

55:00

like? What is next in store

55:02

for the school? And this is for both of you.

55:05

Well, I can tell you that. So I've

55:07

been on the faculty since nineteen sixty three,

55:09

students since nineteen sixty.

55:12

In the sixties, basically

55:15

there was a pretty good economics group. There

55:17

was a developing finance group, and

55:19

that was it. I mean, there's

55:21

the school's junk. Well,

55:26

but look that was not unique to us. So

55:28

I remember when I was recruiting as a student,

55:31

UM in college not from

55:33

here. The people recruiting

55:35

said, why do you want to go to a business school? They

55:37

don't teach you anything, we don't pay anything for

55:40

what they what they do. And

55:42

that was too at that time. I think, and

55:45

what's happened through time is not just

55:47

finance, but every other area has

55:49

been academically

55:51

made more become more successful.

55:53

So marketing, accounting, statistics

55:57

was always pretty good, but it was never part of of

56:00

of business schools. So now we have

56:02

really front rank faculty

56:05

and every single discipline.

56:07

The school is so high, high

56:10

level, competitive on the faculty

56:12

side, on the research side. But it's

56:14

just there's no relation to what

56:16

it was fifty years ago. It's

56:18

a totally different professional place.

56:21

On the students side, I think there was a

56:23

challenge, and I've been complaining

56:25

about it for a long time. Students

56:27

don't work as hard as they did in

56:29

the old days. I've heard this is a

56:32

very very difficult school to

56:34

work your way through. Well, but the reality

56:37

is we keep track of hours

56:39

work per per per class out

56:41

of class. When I started

56:43

teaching, everybody was around fifteen

56:46

per class. That number has dropped

56:49

dramatically through time. I bet

56:51

this room would disagree with that. No, no, no,

56:53

no, we have the statistics. It's not it's

56:56

not it's not a guess. And

56:58

and David, what do you see as

57:00

the next decade holding for the Booth School?

57:03

Well, I'm not really in a position there.

57:05

I mean, wow, I just gave

57:08

him some money. I figured they

57:12

can figure that stuff out. If I had to figure that

57:14

out as well, I mean that would be a real

57:17

hero. You know, I I'm just um,

57:21

I'm not. I don't know where it's gonna go, but

57:24

wherever it goes is going to be important. And

57:27

and that's the perfect spot to end. Ladies

57:29

and gentlemen, please say thank you to Professor

57:32

Gene Fama and David Booth. That's

57:39

my conversation with David Booth and

57:41

Gene Fama. If you enjoyed that,

57:44

we'll go to Apple iTunes, look up

57:46

an inch or down an inch, and you could see

57:48

any of the nearly three d conversations

57:51

we've had over the past five

57:53

years. We love your comments, feedback

57:55

and suggestions right to us at

57:58

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58:00

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58:07

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58:09

at rit Halts. I would be remiss

58:11

if I did not thank the crack staff that helps

58:14

us put these conversations together

58:16

this week and this week was an unusual

58:19

expedition. We all had to slip out to Chicago.

58:22

The folks at the University of Chicago were great. They

58:24

did a really great job in setting

58:27

things up so that we could both videotape

58:29

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58:32

Boyle is my producer, and he was on hand

58:34

there along with a few other folks from Bloomberg

58:36

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58:39

Volmer is my audio engineer who helped

58:42

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58:47

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58:50

Barry rit Halts. You've been listening to Masters

58:52

in Business on Bloomberg Radio.