Why I Embrace Skepticism

So, when I was a young boy, I had a very annoying habit of taking apart the model cars that my dad would spend literally hours putting together. I would start to deconstruct them piece by piece probably in the reverse order in which they were assembled. And I think in some ways, I was preparing myself for doing rigorous research in science and then later in finance because that's really at the core of research. What are all the questions you can ask? And once you understand it at a very granular level, then you can start to understand what implications you can draw from that research. I think a key responsibility for what we do here at Dimensional is subjecting research results to a higher level of scrutiny. If I have something that works really well in a back-tested simulation, that's not the same thing as incorporating it into a real live investment solution that our clients depend on. I know there are many out there who do equate skepticism with pessimism. At various times in my life, been called a glass-half-empty guy. For me, it's not about the level of water in the glass. Skepticism is about wondering why you were presented with that glass in the first place. That skepticism, not pessimism, is an important aspect of what we do here at Dimensional. When I am assessing any research result, I'm trying to think, "Okay, what is the basis for why I would see this?" So you put, you know, 3000 people in a room... Be a pretty large room. A ballroom, let's say. Just pure chance alone tells you that a couple of people are going to get 10 heads in a row flipping a coin. Does that mean they have any special skill flipping a coin? Almost certainly not. When I look at that, I'm thinking, "Okay, what role did chance play in this?" And clearly the academic research tells us that chance probably played a really big role in it. We often say that your portfolio is like a bar of soap. The more you touch it, the less you're gonna have. And I think that's a critical element for investors is to stay in their seat, be patient, and not be tempted to make a lot of sweeping changes based on reacting to the markets. They can only have that resistance to temptation if they have a well founded set of principles that are informed by research.