Don’t Fight the Stock Market—Make It Work for You

What do you want people to walk away with from the book? I want 'em to feel confident in their investment approach, that they can feel safe in a way. You know, investing in the stock market, you know, there are ups and downs, but you can still feel safe. It doesn't mean there's zero risk, it just means you feel comfortable with your decisions you made, and importantly, decisions you made, you are able to stay with 'em. You know, this 10% return we throw around all the time. It's only there if you're in the market. If you're outta the market, when you have a big run, you don't need do-overs. There are no mulligans in the market. Welcome to The Informed Investor, where we break down the latest financial headlines, bringing in research and insights to help you separate the news from the noise. Welcome everybody to The Informed Investor, a show brought to you by Dimensional Fund Advisors, a firm that's bringing science to the world of investing with over a trillion dollars of assets under management. I'm Jake DeKinder and incredibly excited to be joined by our chairman and founder, David Booth. David, it's great to have you in here. Great to be here, great to be anywhere. At my age. I love that. David, I wanna focus the discussion today on a book that you have come out with that will be coming out here a little bit later this year called Stay Calm. And really, this is kind of a, I'll say a journey of the last 10 to 15 years that you've been focused on around communication. We realize that the world didn't need another book on how to invest. It's more how to think about investing, you know, and particularly in today's climate, you know, with people with a lot of anxiety, it is appropriate to come out with a book, Stay Calm, kind of says it all. We want people to feel optimistic and confident about their investing. Talk to me a little bit about kind of the process of getting to this point, because again, you and I joke all the time and I kind of joke with you, I say you're kind of, you're a geek and I mean that most respectful way possible, but you did for decades. It's trained at University of Chicago, study under Fama. You launched Dimensional, it's researched focus, it's data, but there has been a shift that you've gone through. Well, yeah, I realized about 10 years ago that if we really want to change the world, we gotta speak to people using their language not the language of academia. And that's set us down this path. And in some ways, it's much more difficult. You know, I tell people I spent two years learning investing at Chicago and I've spent the last 50 trying to communicate it. You know, it's a problem. And when we don't do it right, you know, people do have a lot of anxiety and stress that they don't need to have. If people understood better about how markets work, then they'd be more likely to have come up with a sensible investment program and that they can stay with and stay calm along the way. Why do you think that, in your perspective, why do you think people stress so much about money and investing? What have you seen? Well, I think, you know, people grow up dealing with uncertainty in every aspect of life. And then all of a sudden they have a little bit of money and they want to invest, and all of a sudden the uncertainty overwhelms 'em. You know, what people don't realize is, you know, what they've learned about dealing with uncertainty. A lot of those same principles apply when it comes to investing. Well, that's been a big part of what you've been working on the last couple of years, is connecting these experiences, these life experiences and the principles that I think make people successful in life that really move directly over to the world of, you know, when you think about a couple of those, I think embrace uncertainty is one that you always sort of come to. And if people can approach it that way with life and with investing, they really can explore their options almost. Yeah, I think that's really in some ways at the beginning is to say, look, you know, uncertainty is what creates opportunity in life and investing in life for sure. You know, we've all had to make, you know, tough choices often, you know, on the spur of the moment. The way to think about it's uncertainty really creates opportunity. People need to focus on the opportunity created by uncertainty in life. You know, how you got ahead, taking a lot of chances and gotten to where you are. Same way it applies in investing. If there were no uncertainty, that means everything is known for sure. That would be riskless, you know, then your return would be a riskless return. So it's the uncertainty in say, the stock and bond markets that creates the opportunity to have, you know, greater returns than you can get from say, a money market fund. Well, let's talk about one of the stories that's in the book, which I really enjoyed reading, was your parents and the safety deposit box and the money you found in the safety deposit box, which I think relates to the concept around if maybe uncertainty had been embraced, what that could have done for their wealth. Yeah, I grew up in a, you know, originally in a small town in Kansas, and my parents never invested in public markets. Of course things were different back then. Investing was much more expensive. You didn't have market portfolios and they had the feeling like a lot of people do that the game was kind of rigged, that they were outsiders and it was the insiders that made all the money and would take advantage of 'em. So they never invested in public markets. So they passed away, and back in 1985 then. We went through their safety deposit box, and then there was $15,000 in cash. I mean, I was stunned. And so I went back and calculated, you know, if they'd had $15,000 at the end of World War II and my dad came back from the war and invested and got the market return, stock market return, it'd be worth over a million dollars in 1985. So I was noodling about that recently and last year, go, hey, look, it's been 40 years since I opened that safety deposit box. What's been the experience over the last 40 years? And once again, $15,000 if they got the stock and market return, would after 40 years be worth over a million dollars again. I mean, how cool is that? We all study compounding and the benefits of compounding, the magic of compounding. But when you have a real life example, it really does hit home. It does. And as you've talked about many times, the beauty of public markets. One of the biggest miracles that people don't seem to be as excited about as I am is the miracle of public markets. You look at the last 100 years, you know, stocks have done about 10% per year annualized. Now think about that. If in doing a test you wanna, you know, test all kinds of economic scenarios. We've got that the last 100 years. It's hard to imagine better test climate than we've had starting off with the Great Depression, World War II, you know, yada yada, high inflation, low inflation. I mean, we've had almost every kind of scenario, or not every, we've had lots of different kinds of scenarios. Now, so is this time different? Yeah, just like every step along the way was different. And the market through all of that, ends up providing investors with a 10% return and it gets better because it's not only important for investors, it's important for companies issuing stock, issuing capital. It's US capital markets have really been a big contributor to America's success. You know, the ease of raising capital. And you know what it basically, if you look on average over long periods of time, then it seems as though, you know, when companies issue stock, they have to set a price low enough that people would get a 10% return. So that's a fair deal to them, fair to the investor. And because it's fair to both sides, then that's what we have a really well-functioning capital market. Well, I think there's, I think what you're hitting on too is there's an education piece that's necessary for investors. And I think this book, Stay Calm, does a nice job of educating people on how markets work, how to think about investing in markets. And I wanna come back to a comment you made there, insiders versus outsiders 'cause I really think that's important. In my experience, when I talk to a lot of people, there is an intimidation factor when they think about the stock market. It's the unknown, to your point, some people think it's rigged, but one point that you always hit on is is that if the insiders somehow had the information or they had quote unquote the inside track, you'd see better performance with the managers. Right. Yeah, I think it's always good to start with reviewing how markets work. You have buyers and sellers coming together and they don't trade unless each side thinks they got a good deal. Now, in today's climate, we have very sophisticated investors on both sides of the markets. Anytime they see a deviation from a fair price, they're all over it. You know? And we're in an environment where transparency is, is there's a lot of transparency. People have access to similar information. There's a rule of law, there's some investor protections, there's a lot of trading volume. So we have price discovery, in that kind of scenario, then you would expect what comes out are fair prices. And that seems to be your best assumption, or the evidence for that is if you look at the performance of professionally managed portfolios, they don't seem to do to better than the market. In fact, once the costs are considered, they seem to do worse. How do you explain that? It's 'cause prices are being fairly set. That's why I say it's a miracle. I don't know when we're gonna have the ticker tape parade for markets, but we should. I see the smile on your face and I hear the optimism in your voice. And that's another thing I just, you know, whether it's the essays that you've been writing for the last decade plus, or really focusing again on this book, Stay Calm. It's a very optimistic message. And I think a lot of investors need to hear that. I don't think it's optimistic, I think it's realistic. God, it's hard to imagine markets would work any other way when you have very sophisticated institutions out there trading with all similar information and very low cost of trading, you know, it's hard to believe it would be any other way. You know, so that's why we need to celebrate the markets when currently, there'll be ups and downs. But let's say, let's go back to say, when COVID hit, you know, the market drops. So what the market has to drop enough so that going forward you have a positive expected outcome. You know, that's people, if they don't have a positive expected outcome, people don't come in to invest. So, I mean, it's a little naive to say, you know, markets never lose money. You know, markets react to new information. The point is, at any point in time, your best assumption is you're gonna have a positive expected outcome going forward. Sometimes people think in investing, you have to predict where the market's going. Well, that's just not true. I mean, people can't predict the market. And even if they could predict what's likely to happen over the next month, new information may come in and wipe that out. But that's how you got through life. I mean, people when they go to college, say, here's what I'm forecasting, how my life is gonna turn out, you know, I'm gonna get this kind of job. I'm gonna get married when I have, you know, you don't predict these things. You just make a sensible choice for yourself and be adaptive as you go along and pay attention to everything around you. You know, people talk a lot about the uncertainty of markets, but there's so much uncertainty in life. It's not even clear that the uncertainty of the market is their biggest source of uncertainty. And dealing with all that is complex, which is why people need an advisor. You know, nobody can be an expert on everything. Taxes, estate planning, so on and so forth. And nobody knows for sure. You know, being a parent, you're a parent, you know, it's hard to forecast what's gonna happen. Tell me about it. So, you know, it's all about contro. what you can control. You know, again, being a parent, some things are just outta your control. They are, that's right. They are, all three got home from camp and we thought that they sort of had a great experience and then they're back and yeah, it's like chaos again the day that they come back from camp. So what life is about and what investing is about is control what you can control and manage what you can't. Yeah. And that's kind of the source of optimism. Markets are doing their job, you know, you're gonna get a fair deal investing in the stock market, not on any individual stock, but we're talking about the overall market. You know, that the evidence on that is pretty overwhelming that you're gonna get a fair deal. And you mentioned this, financial advisors, last chapter in here really talks about role of financial advisors. I mean, in your mind, why are financial advisors so important for a good overall investment experience? Well, it comes back to, in the last part of the book, it talks about true wealth. I think what we're talking about is how do you maximize true wealth? If you ask people, you know, what's more important to you? Family, you know, friends, your health, money? Money isn't at the top of that list. You know, it's these other things that are important. And an advisor can help look at your overall family situation, your current resources, and you know, your projections and so forth. And can help you put all of that together. You know, the investing piece is kind of the icing on the cake, if you will. But these other things are equally important. It's a lot of moving parts when you think about your life, your finances, all those things. And quite frankly, where do you wanna spend your time? I think is a big part of it as well. So one form of investing is investing in time. How do I wanna spend my time today? The constraint is that there's only 24 hours. So how can I invest my time to be the most productive? And I can free up a lot of time instead of going home at night and listening to Kramer and pulling your hair out, trying to forecast whatever's gonna happen. You know, trust the markets. You know, it's in this era where it's difficult to trust individuals. It's nice to know that you can, that the market process is trustworthy. It's working for investors. Let me ask you this, process of writing the book, I mean, 'cause I mean, not a lot of people go through the actual like effort and process of bringing a book to market. What was the process like? Well, it was very interesting. For one thing, I didn't want it to be a memoir. I didn't want it to be a history of Dimensional. So I was kind of waiting for the general theme and, you know, the Stay Calm is a pretty good theme. I agree. And I learned a lot. I ended up taking math in school primarily. So I didn't have to write term papers. You know, you take math, you go and you take the exam. Either you did okay or you didn't. Rather than sitting up all night writing a term paper. So my instincts are not as an author. And so I had a lot of, it was a team effort, a lot of people helping me. And the thing I had to learn most was the importance of telling stories in this, you know, through the book, there are half a dozen stories that have come out that people seem to like. In fact, most of those stories I really haven't shared with very many people. I mean, 'cause these are kind of stories you just don't, you know, at a dinner party go, yeah, hey, lemme tell you about my parents. Lemme tell you about my first car or something like that. So it was a learning process and it was actually a lot of fun. And I think the outcome is kind of what I would hope for. Well, I would agree. There's a lot of great stories throughout. I feel like the readers get to know you, David Booth as a person. Beyond all of the great principles and ideas in there about how to think about investing. For those that have had a chance to review it, what's been the response so far? Well, it's been great. You know, I just met, had breakfast with a journalist, big name journalist last week. He wanted to give it to his daughter. You know, because, you know, she's college age and he says, I don't think she'll read it, but she ought to. And I love to hear stories like that. Well, I would agree from what I've heard in my own experience, very positive feedback on it. I think there's great stories in there. I think we get to know you. There's just tremendous information about how to think about the world of investing. And as you've talked about too, it's not four or 500 pages long, which I think actually is really important. 150 pages. I mean, you know, well you don't want to write a book to reduce people's stress and have it be 500 pages, you know, so it's worked out very well. May I give a sales pitch? You can do whatever you want. Hey, for everybody listening out there, this makes a great Christmas gift. How's that? David, you're still a sales guy at heart. You can't help it. Closing out here, what do you want people to walk away with from the book? I want 'em to feel confident in their investment approach. That they can feel safe in a way, you know, investing in the stock market, you know there are ups and downs, but you can still feel safe. It doesn't mean there's zero risk, it just means you feel comfortable with your decisions you made, and importantly decisions you made, you are able to stay with 'em. You know, this 10% return we throw around all the time. It's only there if you're in the market. If you're outta the market, when you have a big run, you don't need any do-overs. There are no mulligans in the market, you know, so I want people to feel comfortable, feel confident, feel like they can trust the process, and in that sense, feel safe. Well, I love it. The book is Stay Calm from David Booth. It will be coming out later this year. Certainly you can get more information on ordering copies of this. And also wanna remind you to subscribe to the newsletter from David Booth, staycalminvesting.com to stay up on all of the information around this. David, great to have you on the program. Great, thank you. All right, thanks everybody. Have a great rest of the day.