Conversations Matter


When people think of Dimensional, they often think of our numbers. But early on, we realised that words are just as important.

We started the firm around a need that wasn’t being met. The plan was to invest in small cap stocks to offer diversification benefits for institutional investors, who held almost exclusively large cap stocks in their portfolios. As you can imagine, our first challenge was convincing clients that this idea—investing broadly in small companies—was sensible and could be implemented. We’d never done it. No one had.

So you might say that our business was built on conversations.

The market quickly tested us. For our first nine years, small caps underperformed large caps more than they ever had in the historical data. But we did what we said we would do—deliver the returns of small companies. We communicated openly with our clients, who understood that markets ebb and flow and that having a diversified portfolio continued to make intuitive sense.

Our clients stayed with us. This experience taught us that, even when numbers are disappointing, conversations form the foundation of trust.

Almost four decades later, we have a lot of numbers to be proud of. But instead of relying solely on charts and data to back up our strategies, we continue to lead with conversations. Numbers are necessary, but they’re not enough. People don’t trust numbers alone. They trust people and the ideas behind those numbers.

We often find ourselves asking, “How can we help our institutional clients and financial advisers with their conversations?” After all, we’re in the same business: creating meaningful relationships that help people “win” through investing—whatever winning means to them. Each year, we strive to find new ways to help our clients gain a deeper understanding of what we’re doing and do better for investors.

There’s a space between the moment when clients consider an idea and make a choice. A conversation serves as the bridge. Conversations can address important questions: How are clients feeling? What are their goals? How do our ideas correspond with their values? We doubt many investors choose whom they work with based on Fama/French factors. Factors alone are not transformative—ideas are. Conversations matter.

investing is a lifelong journey

We know there is more than one way to have a conversation about what we do. Each client has different experiences, needs, and goals. Talking about what’s important to them is the first step in figuring out how we can help.

People don’t like feeling that they’re being sold something. Instead of trying to sell people on Dimensional, we share our view of markets and the ways we implement the great ideas of finance. We’re in the business of providing solutions, not products.

Recently, we’ve been pulling together small groups of clients and employees to have conversations about what the Dimensional philosophy means to them and how our story connects with theirs. Something as simple as a quotation—or even a single word—can spark a conversation. We’ve seen people share stories that reveal their feelings and motivations in ways they couldn’t identify if asked directly. These “aha” moments are some of the most rewarding parts of the service we provide. And they’re a reminder of the values we have in common.

At the end of the day, our “product” is trust.

One measure of trust is seeing what clients do when results are disappointing. During the 2008 global financial crisis, when so many professional money managers had net outflows, we attracted net inflows. Many of the institutional investors and financial advisers we work with had prepared themselves and their clients for the ups and downs of the market, and they stayed invested. Our clients understand that it’s okay to be disappointed with investment returns, but it’s not okay to be surprised.

After all these years, we’ve learned that when you build enduring trust, you lay the foundation for a great business.

Disclosures

David Booth is Founder and Executive Chairman of Dimensional Fund Advisors LP. David Booth currently serves on the University of Chicago’s Board of Trustees, is a member of the Board of Overseers for the Becker Friedman Institute for Research in Economics, and is a lifetime member of the Booth School of Business advisory council.

Eugene Fama and Ken French are members of the Board of Directors of the general partner of Dimensional Fund Advisors LP (“Dimensional’s Board”). Robert Merton, Ken French, Eugene Fama and Robert Novy-Marx provide consulting services to Dimensional Fund Advisors LP. Myron Scholes serves as an Independent Director on the Board of Directors for mutual funds managed by Dimensional Fund Advisors LP.

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