Five Lessons I’ve Learned About Research and Investing


As he retires from a 20-year career with Dimensional, researcher Jim Davis reflects on the lessons he learned as he transitioned from academia to the real-world business of investing.

In the mid-1990s, Jim Davis was a professor of finance at Kansas State University. As he pursued tenure, he painstakingly hand-collected valuation figures and other accounting data going back to the early 1940s—at the time, these data were comprehensively available only from 1963—and published a study on value stocks that went back much farther than any previous research. That study led to a collaboration with groundbreaking academics and Dimensional Directors Gene Fama and Ken French. Together, they extended the survey back to the 1920s and provided additional evidence on the relation between book-to-market and cross-sectional differences in average stock returns.

As a result of this collaboration, Jim decided to leave academia and join Dimensional’s Research group. Over the years, he conducted rigorous research on investing; he wrote white papers that were clear, concise, and clever; and he presented at many of our conferences. When Jim decided to retire, we asked him to share what he has learned about investing during his years in academia and at Dimensional. We hope you enjoy his parting gift.

Marlena Lee, PhD
Global Head of Investment Solutions

Savina Rizova, PhD
Global Head of Research

* * * * *

1. This real-world business of investing is a serious business.

In 1994, as my fellow students and I were preparing to leave the PhD program at the University of Illinois and begin our academic careers, we would sometimes joke that it was a relief to be going into a career in which our mistakes wouldn’t be life threatening. If we miscalculated a t-statistic in a journal article, nobody was going to die as a result. Upon joining Dimensional five years later, I quickly realized that many people rely on our research to guide them in investing their life savings. They trust us to provide research and investment solutions that will help them achieve their goals. They trust us to help make a difference in their lives. What we do really matters.

2. Bad papers should come with warning labels that indicate how bad they are.

Since my responsibilities at Dimensional included keeping abreast of new research making the rounds in academic and practitioner circles, I have read hundreds, if not thousands, of papers over the past two decades. All this reading produced an inescapable conclusion: a lot of the research that is churned out is truly bad. Unfortunately, some bad papers have received a lot of attention. As an academic, I already knew that a lot of bad papers are written each year. What I didn’t realize was how much influence a bad paper can have on the practice of investing.

3. The link between academic theory and practical investing is stronger than I realized. 

As an academic, I knew that the results of empirical papers could be relevant for the real-world practice of investing, if the papers were done well. What I didn’t realize at the time was that it’s not just the empirical papers; theoretical papers can also be valuable guides for practitioners. Whether it’s Bob Merton’s work on intertemporal asset pricing, or Gene Fama and Ken French’s work exploring the implications of valuation theory for expected returns, theoretical models help us think logically about expected returns. They don’t necessarily tell us the magnitudes of those expected returns, but they help us keep our thinking on track.

4. Trust is the lifeblood of the investing business.

Before joining Dimensional, I knew that someone has to trust you in order to give you millions (or billions) to invest on their behalf. What I didn’t realize is how that trust is built over long periods of time by showing up and doing the right thing for the client every day. A lot of smart people are in the investing business. I like to think that some of the brightest are right here at Dimensional. But without the trust of our clients, all that intelligence is wasted. Integrity fosters trust, and intelligence without integrity is empty. I always have been proud to tell people that I’m with Dimensional because I believe Dimensional emphasizes earning the trust of its clients.

5. We all leave a legacy. 

Whenever we spend a lot of time somewhere, we leave some kind of legacy—the place is somehow different for our having been there. As my retirement date has approached, I’ve spent a lot of time thinking about what my legacy might be for having been here for more than two decades. I don’t get to decide what that legacy will be; that’s for others to assess. It’s too late for me to change it now anyway. My encouragement for anyone still reading this would be to think about such things now, while you still have time to have an impact on what your legacy will be.

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Eugene Fama and Ken French are members of the Board of Directors of the general partner of, and provide consulting services to Dimensional Fund Advisors LP. 

Robert Merton provides consulting services to Dimensional Fund Advisors LP.

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