Episode 4

Host: Matt Hall

Guest: Dave Butler

00:00:06 MH Welcome to Take the Long View with Matt Hall. This is a podcast to help reframe the way you think about your money, emotions, behavior and time. The goal: Helping you live richly. We'll talk with the best thought leaders we know to learn from their meaningful experiences. We'll bury the vegetables of world-class thinking in stories and conversation. Helping you reframe your prospective so that, you too, can put the odds of long-term success on your side.

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00:00:41 MH Dave Butler serves as Co-Chief Executive Officer and is a Dimensional Director. He joined Dimensional in 1995 and brings more than 20 years of experience working with financial advisors. He leads a world-wide team of regional directors and clients’ services professionals who apply dimensional strategies and resources to help advisors provide investors with an outstanding client experience. David is on the firm’s executive committee and has been involved with firm-wide strategic vision and decision-making for many years. Dave attended the University of California Berkley, earned his BS in Marketing and Finance in 1986 and an MBA in 1990. He received the CFA Designation in 1998, played basketball for Cal, was drafted by the Boston Celtics, I think played basketball in Turkey and then in England, also. He was inducted into the Cal Athletics Hall of Fame in 2014 and he was named to the Pack 12 Basketball Hall of Honor. Dave was also a Rhodes Scholar candidate and I would add, I think this is one of the best compliments you can give someone especially if you’re entrepreneurial as… after we had breakfast the last time, I said to myself, “I would work for you.”

00:01:53 DB Hmm.

00:01:53 MH I mean, you are just, you are the man! People say that, but you really are. You are the man.

00:02:00 DB I think you are the man. I always… whenever I walk away from interaction with you, it’s always the same feeling. So, I appreciate that comment.

00:02:07 MH Yeah well, you know what’s interesting, I know I’ve heard you talk about your basketball background before and I know at Dimensional, there are, you know, a big group of people who are both academically successful and athletes. That’s such a… it feels to me like it’s a rare combination, but it’s a plenty here.

00:02:25 DB Yeah, yeah, it’s not planned, but I think we’ve got um, athletics teaches you a lot about teamwork and collaboration and, and I think, um, the other guy, another gal, the empathy towards other people. So, I think there’s a real benefit from sporting. I always get this question about athletics and what did you take away from it. I think that’s probably the biggest lesson was just; how do you play with people; how do you be a good teammate. How do you defer to others and how do you take the lead at times when you have to on the court or on the field, or whatever you’re playing?

00:02:59 MH Mm. Hmm. So how tall are you?

00:03:01 DB Six foot, nine. So, ah, they’ve had me at different levels throughout my career. I was 6’10” one year in Europe, I was 6’6 ½” at the NBA tryout camps, so there was, you know, I think if you put your finger in there and just take a guess at it.

00:03:17 MH And yet, you’re not the tallest person in your family.

00:03:20 DB No, yeah, my younger brother, Greg, I call my little brother, he’s 7’ and he, um, he played uh, he’s two years younger than me. He played at Stanford, so Greg and I used to guard each other actually in college. So, Cal Stanford was sort of, you know, the rivalry in the bay area and we played each other, you know four times over, well actually eight times over four years and guarded each other quite often. So, that was an interesting dynamic. He’s was a little bit more successful at basketball. He got drafted by the New York Knicks in the second round, played with the Knicks for two years, backed up Patrick Ewing and then he finished his career with the NBA with the LA Clippers and then he played in Europe for eight years after that with every country and every league imaginable.

00:04:04 MH Mm. You played in Europe. What was your experience like? What did you… do you have any good memories from those days?

00:04:09 DB Yeah, you mentioned my basketball career. So, I, I, um, the year I came out was in 1987. Um, there was an NBA player strike that year. So, I got drafted and normally players would be able to go to the rookie camp and see if they had a chance to make the main roster. But they, they, but because of the strike, they had no camp that year. So, I was a 22-year-old kid. I was in the best shape of my life, ready to go make the Boston Celtics and there’s a strike the day before camp started. They called and said there will be no camp. And so, and the view was that there wouldn’t be a season that year. So, I had… I was sitting at home and sitting on my mom’s couch and a team from Istanbul, Turkey, had called me and said that they wanted me to come over and try out. And, being a 22-year-old kid with nothing to do and I think they offered me a few thousand dollars to come over and try out for them. And, I figured okay, free flight and a few thousand dollars, I might as well play basketball for a week in Istanbul. So, I did, and I was as I mentioned in really good shape and had a really good tryout and they so they offered me, you know, double what I would have made in the NBA in my rookie year. So, I thought I’ll go over there and get my game together and become even a better player and I’ll come back the following year and make the Celtics. That was the plan.

00:05:22 MH Wow. Mm. So then from your…. So, in your basketball career, you don’t make it to the NBA. You get hurt, right? Is that what happens?

00:05:32 DB Yeah, so in Turkey, I actually, um, fast forward to the end of the year, I end up tearing up my calf, which was my gastroc which is the muscle that connects the calf to the Achilles. And so, I came back from that and never really quite got good enough from the physical perspective to get back to the level I was. Um, so I think I mentioned this story to you the last time around was I had played my… I played a year in Japan. I came back finished up my MBA at Berkeley and then I thought well what I wanted to have one more year just to finish it out and make sure I didn’t miss something, basketball-wise. And so, I took a job with a team in Birmingham, England. And I’d say about two months into it I recognized that my leg was not getting any better and my mom called and said a gentleman from one of the big investment banks in New York had called and said that there’s a job waiting for me in New York and I would have to start on Monday. So, this was Saturday morning. So, I walked into the coach’s office and I said, “Look, I just got my MBA at Berkeley and being on Wall Street is kind of where you want to be if you’re a finance major. And so, I said that I’m going to hop a plane and go to New York. And so, I literally got on a plane Sunday morning, got into New York Sunday night. My younger brother, Greg, the 7-footer was there, picked me up at the airport, took me over to his apartment. He had two suits in his closet, you know, big enough for me as a 7-footer. And so, he let me borrow that suit on Sunday night, I walked in Monday morning and started my first job in finance. So, people often ask, what was the transition like to get from sports to real life. And I always tell them, it took about 24 hours actually.

00:07:06 MH Yeah. Pretty quick.

00:07:07 DB Yeah.

00:07:07 MH Okay, so then what was that experience like for you? You’re in New York, you’re living the dream as maybe you were starting to imagine it, post being injured. What do you remember in those days?

00:07:18 DB Well, New York is a great city. A lot of fun. I remember as a young 20 something kid in New York, but you know the, the main take away I think is that I was probably three years into the job and just was not overly excited about what I was doing and not overly excited about what I was seeing in that world. And what I was seeing was, you and I talked about this a while back, was I’m seeing from an investment prospective, it was speculation, it was high commission, it was high transaction, is there a way for me as the broker to you to get you to trade more often than you should. And I just… the experience was not a positive one for me. And so, I had made the decision about three years into the role that I was going to get out of financial services completely and go back to California and be a high school teacher and a basketball coach. I wanted to make an impact on people, and I thought I could do that as a teacher and a coach with high school kids.

00:08:18 And I think it was about a week before Christmas break back in 1994, I was at my desk, I was reading the Wall Street Journal, and there was an ad on the 17th page, bottom right corner, you know a 2-line ad that said Money Manager, Santa Monica, California. And as a California kid, I liked the three words, Santa Monica California. So, I sent a resume out and it turned out that it was Dimensional Fund Advisors and I walked into the office that day, went up to the 11th floor, got off the elevator and a guy named Dan Wheeler, who you know well, uh, Dan who started the financial advisor business at Dimensional was there to greet me. And then off to the left was David Booth and, uh, a gentleman named Merton Miller who was a Nobel prize winner and on the board of directors at the time and David said to Dan, he said, “You know I’ve got another meeting to go to would you mind taking Merton to lunch with you?” And Dan said, “Sure”.

00:09:12 And so there I was on my first interview at Dimensional with a Nobel prize winner in finance and he was going through all the simple capital market tenants, you know, markets work, and diversification is your buddy and so forth. And just was a terrific guy and just the most modest gentleman that I think I’ve ever met. And, you know, I walked out of that meeting with Murden and I went back and talked to Dan for a bit and I talked to David Booth and I went home that night and pulled out my old finance books and started reading the names like Fama and French and Miller and Scholes and so forth and thought, “Wow! This is something interesting and something different and something special.” And Dan, you know, made a statement to me that day that really caught my attention and really made me rethink why and how I can be in financial services and he said that, um, “We’re going to change the way investment advice is given in this country”. And I thought that was a pretty big statement, changing the way investment advice was given in the country. And he went on to kind of suggest that there’s this new breed of independent advisors who work in the best interest of clients and they acted as fiduciaries to their clients and so forth. And he described this model that he thought was going to be the model that would be the main model going forward in the business over time. And it turned out that that was the case. And it since inspired me. I thought this was the first chance I thought I could be in the financial services space and do something good for clients and do it well. And I literally, you know, left that meeting with Dan and signed up the next day.

00:10:39 MH Okay, so how many years ago was that? Was that 25-26 years-

00:10:43 DB 25 years ago. Yeah, so I-

00:10:45 MH What’s funny is the inspiration and just hearing you talk about that. All of it is still here. It’s… I mean even though the size is so different, even though you just catching it at the infancy, I can’t think of anything you said that’s different.

00:10:59 DB No.

00:11:00 MH Ah, today, just gives me a lot of energy too. Let’s go back and talk about low expectations. You fill out… you send in the resume in response to the ad. I have to imagine: 1. You’ve never heard of Dimensional.

00:11:12 DB Never heard of Dimensional.

00:11:14 MH I mean, who had at the time, right?

00:11:15 DB Right.

00:11:15 MH They weren’t seeking, you know, public awareness.

00:11:19 DB Yup.

00:11:10 MH And really only at the time, marketing or selling to institutions, right?

00:11:26 DB Right, yup.

00:11:27 MH So, you couldn’t have gone to the interview thinking, this is my dream job. You were thinking Santa Monica, California.

00:11:34 DB [Laughing] That’s exactly right. And I, and I, this is sort of where luck in life comes into play too. Um, I had made a decision. I was at home for Christmas break and I was probably 45 minutes to an hour away from the job interview. And it was that morning and I thought to myself, you know, I really didn’t understand the description, the way the person that I had contacted described Dimensional and I thought it was sort of a retail kind of a job and I was an institutional salesperson in New York, and I’d worked for one of the big investment banks and so on and so forth. And so, I thought to myself, I think I’ll probably just not go and take a pass on this and call in sick. And, um, I made a decision right before that I had said, “Well, I made a commitment to be there”, something from the days of your mom and your dad telling you, meet your commitments. And so, I had a commitment and instead I’m going to go. So, I went and had that interview that turned out to be the interview with Dan and with Merton Miller and one of those great lessons in life around you know, giving your word and making a commitment to what you say you’re going to do and um looking back at it, it can be described as luck or it could be described as these are some of the real simple principles that I think have, that are, important for anybody as they live their life, you know. Making a commitment and staying to it. And that turned into “luck for me”.

00:13:03 MH What a turning point. I mean, just so huge. Well, we’re all… I’m glad you, I’m glad you kept your word and went to the interview.

00:13:11 DB Yeah [laughs]

00:13:13 MH Um, I’m also really thankful, you mentioned Dan Wheeler and Dimensional in the beginning was really for institutions.

00:13:21 DB Right.

00:13:22 MH And, uh, do you want to talk for just a second about the thinking early on. Well, there are two things I want to touch on. The thinking early on, why just talk to institutions. And then, two, um, I’d like to talk about the first fund, the 9-10 fund. And you know my firm’s, our firm’s motto is Take the Long View, this podcast is called Take the Long View. I think the early days of the first fund, um, connect to taking the long view. Because I think there was some rough days in the earliest days of the first strategy.

00:13:51 DB Absolutely.

00:13:52 MH So could you talk about some of the thinking early on before there was an advisor division or any sort of connection to the public, um, and what the thinking was there.

00:14:02 DB Yeah, I’d love to tell the story because there really is a story of Dimensional, it’s a story of David Booth, it’s the story of all these academics we are associated with and you know one of the board members of Mac McQuown, was David Booth’s first boss at Wells Fargo. And back in the, you know, 60’s, Mac started organizing these forums for academics to, you know, present papers to discuss research topics and so forth. And at those meetings, you know, there was this energy kind of started to develop around, you know, the idea of indexing or kind of a passive management if you will. And in the early 70’s, Rex Sinquefield, who was one of David’s early co-founders here at Dimensional, he started an S&P 500 funded American National Bank in Chicago and Mac and David started the first index fund, institutional index fund at Wells Fargo. And so that was sort of the origin of kind of the idea of indexing. Now, Vanguard gets a lot of credit for starting the first retail index fund, that was 1975, but that was a couple of years after Rex at American National and David and Mac at Wells Fargo.

00:15:17 MH I’m glad you made that distinction because people always think that Vanguard created the index fund and maybe they did for the public, but yeah, a few years earlier, the first index fund was really created by David Booth and Rex Sinquefield and others, but for commercial purposes.

00:15:36 DB Yeah, yeah that’s right and John Bogle and David Booth knew each other and as well as Mac McQuown. And so, there was a real collaborative spirit around this idea of coming out with a portfolio that was going to be good for clients, i.e., diversified and low cost and so forth. So, you know, Rex, well actually David and Mac shared a lot of the work they had done at Wells Fargo with John Bogle in preparation for that launch at the retail index fund. So that was kind of a cool collaboration amongst that group of people at that time. Then in 1981, is when Dimensional was launched and the idea was to offer institutional client’s access to small capped stocks via this fund called the Dimensional 9-10 fund and 9-10 representing the 9th and 10th decile that boughten 20% of stock market capitalization stocks. So that was the start of Dimensional and Rex and David, actually it was David that launched the fund. Um, he tells the story about launching it from his brownstone in Brooklyn. And of course, the concept was, again, to diversify institutional clients into small capped stocks and give them a low-cost way to access that.

00:16:51 MH Which was truly innovative. I mean, we’re glossing past this because it’s like so long ago and there’s so much for us to talk to. But that was a true innovation.

00:16:59 DB Yeah.

00:16:59 MH You know, if you wanted to capture the return of the smallest stocks of the US, there wasn’t a way to do that in a really clean, efficient, meaningful way.

00:17:09 DB Right. The only way you can do that was in an actively managed, stock-picking type of a fund with probably high concentration and high expenses and so forth. So, this was, this was transformational and, uh, you know this was one of those moments in time when we talk about multi-factor investing. We talk about smart beta, etc. etc. That was the original smart beta, multifactor fund. So, everything that we’ve seen today, you know, 40 years later and all the ETF’s that follow multifactor investing in the funds and so forth, that was the number one. That was the first one that was really on the, in the market for institutional investors. And that was a transformational moment in the industry, I think.


00:17:49 MH And then it gets off to a rocket ship of a start? No! I think the next, like, 8 or 9 years are terrible performance.


00:17:57 DB Right.


00:17:59 MH For that strategy. I mean I think the, for, I don’t know how long it lasted, but it was one of the worst periods to have a micro capped strategy in, I don’t know what the total time period was, but terrible start for anyone looking for short term performance. Of course, Dimensional has never told a short-term performance story, but the institutional client who I’m imagining them meeting and I’m imagining being on the investment committee of some big institution and we say, “Okay, there’s this new firm, small cap, we’re going to get exposure to this part of the market. It’s going to be great for our portfolio”. Wow!


00:18:34 DB Yeah. So that comes back to another really foundational part of the Dimensional story, which is setting expectations and meeting expectations. And the setting expectation part was, you know, David Booth wanted institutional clients to say, “Listen, we want to give you diversification in small cap stocks and we’re going to give you the return of small capped stocks”. Now, it happened that for the next 9 years, small capped stocks underperformed large caps, and so that was the performance difference that you were mentioning earlier. Um, but none of the clients, you know, left. They were able to stay with it, Dimensional was able to create a business, even though performance did not meet the expectation, um, it was a performance on Dimensional’s part of implementing a portfolio that gave them that, uh, that, uh exposure to small capped stocks. So, it’s really about, you know, setting the expectations properly. All these premiums have a lot of volatility to them. There’s a premium expected from small capped stocks. David at Dimensional at the time, you know, set out the expectations properly and again were able to meet them. People were appreciative of that and the firm, I think, grew to like $5 or $6 billion by like 1990.


00:19:43 MH Yeah, that’s one of the things I love most about Dimensional is you really look for philosophical alignment. You know, not sort of hey all, maybe many of our listeners may not realize this, but there are a lot of companies that just make strategies and make products because they might be popular. You look for philosophical alignment and the returns and the instruments that are used are really secondary. Would you say that’s an apt way of describing it?


00:20:11 DB Yeah, I think that’s fair. I think the, you know, the spirit of Dimensional is really the pursuit of truth. And when you look at the academics who are associated, you know, with Dimensional, Gene Fama and Ken French, and Bob Burdon and these guys, they are really about trying to come to the right answer. You know, what’s the best answer for the end client. And the best answer, is a progression of research and work and implementation that gets somebody and gets the individual investor to the best outcome possible. So that’s the basis of it and these guys have been at it for 30 and 40 and 50 years trying to find, you know, what is the best answer for the client. Again, that’s going back to what attracted me to Dimensional. That was one of the biggest things. Just the honesty and the pursuit of truth and the modesty around that recognizing that, you know, we’re looking at research and data, we’re laying the foundation, and we’re laying the expectations out properly so that when people are getting into the portfolios, they know exactly what to expect. We’re going to give you the most efficient access to small cap stocks, or to value stocks, or to the market generally and we’re also going to let you know at the front end what the expectations around those premiums are overtime. And so, that’s kind of been the story and the basis of kind of how we worked with advisors. Let’s lay our story on the table, let the independent advisor who’s working for the client make the decision as to whether that makes sense for them and their client or not. And once they do, then obviously we are there to help them and support them in terms of staying in as a long-term investor over time.

00:21:51 MH Let’s go back in time for just one second because I don’t think, at least in any of the podcasts or any of the stuff I see, I don’t think Dan Wheeler really gets his dues sometimes. I know he does from you, but I don’t know if he does like at a bigger level. He really changed the game for the public in convincing Rex and David to consider the idea of allowing advisors who have philosophical alignment to use the strategies with the retail investor.

00:22:26 DB Yeah, Dan is a great story. You know he had a background as an accountant. He was working on his Ph.D. at Berkeley. Back in the day, he ended up in London working for 5 or 6 years in London and came back to Idaho and became a broker. And the story he tells is that on his 40th birthday as a birthday present to himself, he quit the brokerage firm and decided to go and become an independent advisor. And that’s where the Dimensional story comes in. He was a proponent of indexing. So, he was using the Vanguard 500 at the time. One of his clients had access to small cap stocks. In the newspaper, he found the Dimensional 9-10 Fund and he called on Dimensional and went in and had a conversation with David Booth about accessing the portfolio for his clients. And I think the first reaction was, well we’re an institutional money manager only. We can’t have retail money because retail money was assumed to be hot, meaning, money would come in when markets were good. And money would flow back out because of the behavioral aspect of investing. And so, Dan convinced David, you know, that the assets would be compatible to the institutional assets that was the real key. Um, he said they had an investment policy statement that he spent a lot of time with his clients, you know, meeting by meeting and so forth, kind of keeping them focused on what they’re trying to accomplish on the investment side.

00:23:50 So, David to his credit, and this is one of the big aspects that I think that David’s done really well over time is he was open to that possibility and he allowed Dan to go out and actually use those, that portfolio with his clients. So, he became the first financial advisor accessing Dimensional funds. And about a year later, he came back, Dan came back and told David that he thought there was actually a business opportunity in here because, not only was Dan an infinite advisor, but there’s a number of new, I’ll call them pioneers, that were actually going into this independent vice space and most of them were actually custodying the assets at Charles Schwab and so Dimensional could be in the, you know, “retail space” but they could do it via financial advisors who would be able to impact the movement of cash flow and make sure that there’s a compatibility to the assets in the portfolios that wouldn’t disrupt institutional assets there. And so that was the… that was basis of the plan. And from that point on, then Dan made the decision that, you know, he wanted to really figure out a way to do a proper training and a proper education so that advisors really had a chance to kick the tires on Dimensional and to make sure they knew everything about Dimensional and the portfolios so that when they actually put client’s into it, the expectation would be that they’d be there and in there for quite some time for the long term.

00:25:11 So, ah, it was really sort of a, you know, kind of a connection I think that a, that a was interesting at the time. I call it more of an idea that an actual business. But as you know at that time, back to when I started. I started… the firm was about $9 billion. It was about $1.5 billion from financial advisors. I used to say it was more of an idea than an actual business. In looking back now 25 years later, they are at $475 billion from financial advisors. So, it’s actually become a pretty, pretty good business. But again, based upon this idea of setting expectations and meeting expectations, we’ve had a lot of long-term clients like yourself that I think feel confident that what we develop portfolio-wise and what the expectations are being set, that they’re going to be met over time.

00:25:59 MH Oh gosh. So many things we could talk about. Number 1. I’m so grateful that Dan Wheeler is a charismatic convincing salesperson and that David Booth and Rex were open to the idea.

00:26:11 DB Yeah.

00:26:11 MH Because that was really a pivotal decision there. And so today, the total firm Dimensional has, what over $600 billion?

00:26:22 DB It’s about $575 billion.

00:26:23 MH Okay. Many billions.

00:26:23 DB Yup.

00:26:24 MH And offices in how many countries?

00:26:29 DB Ah, 13 offices around the globe. So, we just opened one in Charlotte about a month ago.

00:26:34 MH Wow! And how many employees total?

00:26:35 DB We are just over 1,400.

00:26:37 MH And what number employee were you?

00:26:38 DB I read the other day that I was number 73.

00:26:43 MH Okay. So here we are 1,300 later, how has Dimensional changed? How is it different and what are some of the… we talked about it a little bit earlier but what are some of the key elements that you think are permanent?

00:27:00 DB Well I think the permanent is kind of where you start. I mean, there’s a purpose here and the purpose that attracted me to Dimensional originally was, you know, doing the right thing for the client. Coming up with the right client solution. So, there’s a general culture here that says, “What can we do better, whether it’s investments or um, practice management with advisors. What can we do better to make that outcome for the client end up with the best level that they possibly can?” And that’s been the consistent current theme at Dimensional for the 25 years I’ve been. Sometimes you hear those types of things, you say, “Yeah, yeah, maybe that could be maybe that couldn’t be”. The reality is that’s it. And that starts from the top, so when I go back to Merton Miller and I go back to David Booth and I go back to Gene Fama, you know, these guys are very, very clear about how they think, about what they think the right thing is for the investor and what’s the right thing for the culture of the firm. And that’s something we’ve made a specific part of our business over the last 25 years, you know, how do you maintain the culture? How do you make sure that everybody that comes on board is lined up with that purpose?

00:28:15 And so I think, when I think about leadership and I think about, Okay, how do you impact that, it really starts with purpose. And then there’s an aspect of passion that comes with it, so when you think about guys like Dan and David Booth and Merton Miller, Gene Fama. These guys are passionate about what they think is the right answer is for the client. And um, very, very clear thinking around that concept. And then, lastly, I think is vision. You know it’s just sort of how do you get the vision of the firm in a place that’s going to allow for us to be great stewards of the assets. And I’ll give David Booth a lot of credit on that. You know, when we were at $50 billion firm, um, you know, the expectation was if we continue the same growth rate, over the next 15 years from 2003 to 2018, we’d be a $500 billion firm. And he put that out as a vision for the firm and it wasn’t a sales vision, it wasn’t a sales goal. It was a challenge to every manager here to say, “Listen, if we’re going to be great stewards to $500 billion in assets, let’s start thinking about how we have to hire, how we have to educate, how we have to train, how we have to plan for the future and let’s start doing it now at $50 billion. And low and behold, at the end of 2018, we are at $517 billion. So, he missed it by $17 billion but pretty darn close. But that vision I think was really the vision for the firm built around again that purpose, doing the right thing for the client and then having passion around it. I mean, anybody who’s going to last a long time, 20, 30 or 40 years doing something, you gotta have a lot of passion around that object and that objective that you’ve set out for yourself.

00:29:50 MH So setting up offices all around the world though, your, your phone and your sort of availability could be 24-7. How do you prevent yourself from trying to stay awake all night around the clock attending to whatever’s happening in some part of Dimensional’s world?

00:30:14 DB Yeah, that’s the big question. And for me, I’m, I’m a father. I’ve got 4 kids. They range from 16-10 and I, you know, and when I think about my role, um and David Booth has been great about this. I mean, we’re here, and we’re expected to put all effort and energy into it you’ve seen us at conferences and anywhere else. We love what we do, but also the recognition of the balance. How do you find the balance so that you have the family life and you have time with your kids and your being purposeful about who you are and what you’re trying to create, you know, not only at work but also outside of work. So, for me, I guess that kind of balance that keeps me from working 24 hours, 7 days a week is to say, you know… I also have a really big goal and objective to do as much as I can for my wife and my kids and make sure that the family unit and the, you know, the connections and the empathy amongst the kids is there. And if I’m not around for that, then it’s going to be tough to make it happen. So, for me it’s best to balance because how do you get that balance between this, which I am very passionate about obviously, Dimensional. And then this other thing that I’m very passionate about as well which is my family. So, um, I never allow myself to discount one in place of the other.

00:31:34 MH Yeah, you know, a shout out to a program called the Strategic Coach, Bo Cornell, another old school Dimensional person. He told me about Strategic Coach one time and said, “I think you would really like it. I signed up for it. I met some really interesting people through it.” But one of the things that’s still with me today that I took from the program was the way they encourage you to schedule your time, with focus days, free days and buffer days. And what they say it’s in our culture, we tend to think we only, we have to work really hard to deserve vacation. And really what happens then is you force people to tolerate you in a less productive state as you work to sort of earn your free time. They try to reposition free time such that it keeps you fresh and it sort of max’s productivity and efficiency and probably the best version of yourself. And so, your job is to schedule free days and really take time off to allow yourself to recharge and rejuvenate, not necessarily vacation as a reward.

00:32:33 DB I think that’s right. I think, you know, the question is leader and I know that you’re in this position too. Is how do you back yourself off to get the best out of your energy. And you have to find a way to do that and everybody is different. Some people can go 24-7 and want to do that but my view and I remember Bo Cornell talking about that. And to this day, I’m not great at it, but I try to schedule and I try to find slots of time that are free time or me time or moments when I can just think or imagine or be strategic about, you know, ideas that might come to mind. I think if you don’t allow yourself to do those sorts of things and I think you have the possibility to kind of run yourself in the ground and not in a positive way. So, balance to me just like diversifying your assets and diversifying across many stocks, that’s really important in terms of your life and the kind of way you live it.

00:33:26 MH Yea let’s talk about life for a second. Okay you have 4 kids. Do they think what they’re dad does is cool?

00:33:33 DB (Laughs) I think they’re starting to think about what it is, so um, the great thing I’ve seen at Dimensional over the years is, is the number of kids that either have ended up working for Dimensional, kids whose parents have worked here, or when I look at advisors whose kids I’ve known since they were 3 or 4 years old, they’re now in the business or they’re now working for Dimensional for instance. So, you know, you see a lot of that and to me that says that if a kid, when they’re 4 or 5, 10 or 15, or whatever it is, if they see they’re parents come home and they’re energetic about what they do and excited and passionate about it, um, they’re going to look at that and say, “You know, I’m not sure what dad or mom does, but it seems like they’re very happy and they’re very excited about what they do.” And that comes back to the purpose part. So, I think the beauty of this community and what I’ve seen over the 25 years, I think what I’m most proud of, I love seeing these advisory firms develop, grow, get better. I love seeing the client experience that results, I love to see the interaction between the advisor and the client and the trust that’s been developed and the… it’s just the happiness around where they are in life and their retirement. You know, that’s the sort of stuff that gives all of us energy and we’re obviously at Dimensional a second component to that, so we’re not the direct advisor with that relationship, but I can tell you everybody at Dimensional, their biggest pleasure is to see the advisor who’s had success, who has really happy clients and we get to see and meet some of our investor’s symposiums. That’s the coolest part of the business. And so, I think that translates into the kids. And my older two are just starting to see that. They’re starting to understand what I do and what money management is and what an advisor is and so forth. Um, that’s where it’s getting fun with the kids.

00:35:27 MH Yeah, it’s so interesting about where everything has to intersect to get to that fun place. There’s all this academic research that then gets put into practice or applied by someone and then it has to meet up with someone’s real life and make a difference.

00:35:43 DB Yeah.

00:35:44 MH And, um, seeing that whole sort of ecosystem come alive and have a real impact. You’re right, that is one of the most fun and satisfying parts of this job. And I would say to you, um, if I could be a virtual thank you note on behalf of a lot of the other people we work with, I mean, I’m extraordinarily grateful. I mean, there is no other company like you. There are people who are making strategies or products that are, um, imitations or are similar to what Dimensional has been doing for a long time. But you really are sort of the mothership of this way of thinking, of this philosophy.

00:36:26 DB Well thank you and I think it’s really about everybody plays their right position to get to a solution that’s the right answer. So when I think about Dimensional, you know, Dimensional is the experts on the capital markets and Fama and French and those types of thinking in Gerard O’Reilly, Mike Coscio, they’re thinking about, you know, what’s the right research to look at, what’s the right design in the portfolio, how do we implement in a more efficient way. So that’s what we do and we fully recognize and this has been from day one, is that we see the advisor being the expert on the client and their client situation and everything that they need to know about the client that relates to their retirement and their charitable aspirations and their kids and college concepts and so forth. That’s what the advisor does and obviously adds discipline into the factor as well into this space. So, having both of those pieces come together, that leads to that great client experience that we all envisioned, you know that I envisioned back 25 years ago when I was ready to leave the industry. I thought may, it could be like this. Why wouldn’t it and why couldn’t it and why shouldn’t it? And that’s been the outcome and that’s what I think has been so satisfying and just see again to see the client’s who work with the advisors how grateful they are and how happy they are with their advisor and happy with Dimensional as well. You’ve gotta have that feeling and that feedback to be able to do it for 20 or 30 or 40 years.

00:37:54 MH Yeah. I always wish we could use testimonials, which we can’t, but there’s so many great stories we could share about this sort of the long-term impact this way of thinking has had on real people’s lives. Um, okay, so I know this probably this might be an annoying question. Uh, and it could be just semantics at some level, but you know in our world, people used to say indexing. And then they said passive. And now some of us say evidence based. And some people say Dimensional is active. What do you say?

00:38:26 DB We call it Dimensional investing and I like this quote that David Booth made in an article a couple of years ago which is, you know, we can beat the market without out guessing the market. So, we’re not stock-pickers, um, we think that price is the hero as in my counterpart, Gerard O’Reilly says. We think price reflects information in the markets and the market is this great information processing machine. And so that’s a starting point. And then from there you start to look at the data and say, “Okay, where does the data suggest that we could invest, or we could deploy assets to get the highest return”. And then how do we implement in a fashion that’s going to be the most efficient. So Dimensional investing is, is all of that and it’s not a I think a description that can be balled down to one word or two words or whatever it might be. I think it’s an approach to the capital markets that is different from everything else out there and it’s a very worthy approach to accessing the markets and deploying client’s assets.

00:39:34 I would just say, you know, we are in the game. We’re in the alpha game. We can beat, we think we can beat the market and we can do that without out guessing the market. I think that’s a great description by David.

00:39:43 MH But if you try to get exposure to a portion of the market, you also are always talking about the little things you do around the edges to add value. Do you want to say anything about what all those sort of like secret execution pieces are that really make a difference that could be the unsung heroes of some of the Dimensional story?

00:40:04 DB You know, I was thinking about that today and I won’t tell you about all the details because there is a lot of detail to that, but um, the anecdote I was thinking about is how do you describe that to, you know we always talk about Mrs. Butler, my mom. How do I explain how we differentiate ourselves? How do we do it differently? And I was thinking about it today for some reason, an analogy around golf. You know, everybody knows what you’re supposed to do in golf. You’re supposed to hit the ball into the hole. And you’re supposed to do it in 3 or 4 or 5 shots whatever it might be. But, as we all know, that simple answer is real different than the reality out on the golf course. Whether there’s a slant in the hill, or whether you want to shoot over a tree or under a tree, or whatever it might be. So, where I think Dimensional has you know really differentiated itself, and you can see this from our body of work on a long-term track record, is all of those implementation aspects to portfolio management and portfolio design, one, and implementation two. So that’s the secret sauce. It’s the knowledge, the experience, it’s all the specific aspects that differentiate us from everybody else out there.

00:41:14 So, to your point earlier, there’s tons of smart beta and multifactor portfolios and you can do it very, very simply. Just like you can describe the game of golf very, very simply, but when you get down to the subtleties of doing it and actually getting a score that is going to be below par or in this case above the benchmark return, um, it’s important to have the knowledge, the experience and the awareness of how to do that in a really effective way. And that’s what I think Dimensional has done over the last 38 years.

00:41:43 MH When you’re at a party and someone knows that you work in the investment world, but they don’t know much about Dimensional. And they say to you, “Oh! What do you think is going to happen in the markets? Did you see what happened today?” I’m sure you have a better answer than I do, but I normally have a kind of a flip answer that I want to improve on. Um, what do you say when people say-

00:42:07 DB I’d love to hear your answer!

00:42:08 MH I don’t care. It’s irrelevant. It doesn’t matter. Um, let me tell you what Take the Long View Means. Let me give you a copy of my book. (Laughs)

00:42:16 DB (Laughs)

00:42:16 MH Things like that. It depends if they have 3 hours and 36 minutes which is about what it takes to read the book. Or listen to the audio version or if they want the 30 second version. But I think so often people are asking a nice question, it’s trying to express interest in what you do and yet that’s sort of what happened today or can you tell me what’s going to happen tomorrow is part of what typically get the individual investor into trouble. That’s sort of really short-term thinking, and yet, for a lot of investors, that’s just what they know when they think of the market is like, what’s the tip, what do you know that I don’t know. What is known, they wouldn’t say it this way, I don’t think, but what’s know that is not in the price.

00:42:54 DB Yeah, yeah.

00:42:55 MH So what do you say?

00:42:56 DB Well, I always think of Dan’s comment about, um, he has an opinion about what happening in the markets today. But God forbid he tries to invest based upon that opinion. So, that kind of sets up this idea that you know, there is no crystal ball, there is no look into the future and tell me what’s going to happen tomorrow. The price, going back to this idea, an idea of an information process machine. That’s a concept that people, if they really think about it, and think about the millions and millions of inputs into this thing called the price, the idea that you or I or anybody else are going to actually out-think that price on a regular basis is a real stretch. And so, we’ve tried to think for years about how do we describe that and how does this power of the market is so important in terms of investing. But the main key, is that, you know, the idea that you can actually, or you need to look into the crystal ball and make some future prediction to be successful is not the case. You can deploy your assets; you can do it in an efficient way, and you can have success and you can get returns from the capital markets over time.

00:44:02 MH Well, let’s wrap up by saying this. You are a super star. I still feel the same as I said at the beginning. I’d work for you. You are an amazing rock-solid individual. I’m so glad that you went to your interview all these years ago. I bet you are too.

00:44:16 DB Yup.

00:44:16 MH And I guess is there anything you’re working on in the future that excites you or you want us to know about?

00:44:21 DB Well I think we continue to be a firm that, um, obviously is in pursuit of the great idea. So, you know, on the research and trading side, we are constantly pursuing the best solution and best answers. So, I think advisors and their clients need to know that, for sure. Um, I think we’re also a firm that’s really built around a culture and an approach to the capital markets, but also an approach to doing the right thing for the client. And so, um, we’ve been working on something that recently called the Dimensional University and that Dimensional University is a way to, as we expand, you know, the question is globally, can we maintain the same culture and the same approach and so forth that’s made us successful over the last, you know, 38 years and can we do it for another 38 years. That’s the challenge.

00:45:10 So, I think that Dimensional University is an eternal effort that we’re going to educate and train employees around the investment approach and around the culture and history of the firm. And we think that, um, once we get that right internally, then we want to take it external as well and help advisors, you know, learn from our folks on the research and academic side on the, for investments, and then also, you know, get comfortable and knowledgeable about our culture and our history. And I think it’s a culture and a history that I think advisors have, have connected to because I think they’re in the same game. Their fiduciaries, their client, they want to do the right thing for their client. They want to act in their best interest. They want to sit on the same side of the table as the client as we always say. And that is really the spirit of the whole thing. That is the purpose. So, um, I think an extension of that spirit and an extension and that purpose is going to be the key to, you know, successful investment experiences and a successful engagements that we have with advisors on a going forward basis. So, that’s kind of where we are, that’s what we want to do. We want to make sure these things extend. And you know, part of my role after being here 25 years is to make sure that this thing called Dimensional and what’s been created that the culture and the history and the approach in the pursuit of excellence pursuit of truth is always there over the next 25 or 30 years as well.

00:46:31 MH Mm. I’m going to be here another 25 years, so let’s do this again.

00:46:35 DB You’re a young guy.

00:46:36 MH You’re Taking the Long View man!

00:46:36 DB Yeah man!

00:46:37 MH All right, well great to be with you. Thanks so much and thank you for listening. Subscribe, leave a review, join my firm’s newsletter. Do something. Thanks so much! Bye Bye.

00:46:48 (music)

00:46:54 MH What would you tell others money can’t buy? (music)

00:47:03 MH Please note: The information shared in this podcast is not intended as advise. The intent is to share meaningful experiences. I am likely not your advisor nor wealth manager nor financial planner and my opinions are my own and not necessarily shared by Hill Investment Group. Investing involves risk. Consult a professional before implementing an investment strategy. Thank you.

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