Standing outside the University of Chicago Booth School of Business recently, I was struck by how this building represents something far more valuable than bricks and mortar.
The building bears the name of David Booth, founder of Dimensional Fund Advisors (DFA), whose $300 million donation in 2008 recognised the profound influence this institution has had on how we understand investing. It was the largest gift to any business school in history at the time—and for good reason. The University of Chicago has produced 97 Nobel Prize laureates, making it one of the world’s great centres of economic thought.
I’ve just returned from the United States, where I attended a conference and met with some of the most innovative wealth management firms operating today. What struck me most wasn’t the technology or the marketing—it was the unwavering commitment to letting science, not emotion, drive investment decisions.
The Chicago Revolution
The University of Chicago fundamentally changed how we understand markets. In the 1960s and 70s, Eugene Fama developed the Efficient Market Hypothesis, which challenged the prevailing wisdom that active stock pickers could consistently beat the market. His research, along with work by Harry Markowitz on portfolio theory and Merton Miller on corporate finance, created a scientific framework for understanding how markets actually work rather than how we wish they would work.
These weren’t armchair theories. They were rigorously tested hypotheses backed by decades of data. Fama won the Nobel Prize in 2013.[1] More recently, Douglas Diamond, who serves as a director at DFA, won the Nobel Prize in 2022 for his groundbreaking research on banks and financial crises.[2] The message is clear: markets are remarkably efficient at incorporating information into prices, making it extraordinarily difficult for active managers to consistently outperform after fees.
From Theory to Practice
This is where David Booth’s story becomes fascinating. After studying under these pioneers at Chicago, he co-founded DFA in 1981 with a radical idea: academic research should drive investment strategy. Rather than trying to pick winners or time markets, DFA built portfolios that captured the dimensions of return that academic research had identified—company size, relative price, and profitability.
The firm’s commitment to its academic foundation remains extraordinary. Eugene Fama himself serves as a director and consultant to DFA, alongside Nobel laureate Douglas Diamond and numerous other distinguished academics.[3] This isn’t window dressing—these researchers actively shape the firm’s investment approach. Today, DFA manages over $850 billion globally and works exclusively with around 1,800 financial advisers and institutions worldwide who share their evidence-based philosophy.[4]
We’ve been fortunate to be part of that community since 2003. Over more than two decades, I’ve had the privilege of meeting David Booth himself, along with many of DFA’s esteemed researchers and team members. These aren’t just business relationships—they’re ongoing dialogues about how markets work and how we can best serve our clients.
But philosophy alone doesn’t pay the bills. The real work happens in translating these academic insights into portfolios that work for real New Zealanders with real goals. Our investment committee builds portfolios that harness these evidence-based principles while respecting each client’s individual circumstances. For some, that means incorporating ESG considerations—ensuring investments align with values without sacrificing returns. For others, it’s about smart tax planning, understanding how PIE funds, FIF rules, and portfolio location decisions can significantly impact after-tax wealth over time. The science tells us what works in markets; our job is to implement it in a way that works for you.
The Emotional Trap
During my US trip, I sat through presentations from wealth management firms managing billions in client assets. A common theme emerged: the biggest threat to investor success isn’t market crashes or economic recessions—it’s investor behaviour itself.
We’re hardwired for emotional responses that work against us in financial markets. We panic when markets fall and become euphoric when they rise. We chase last year’s winners and abandon sound strategies at precisely the wrong moment. We believe we can spot the next big thing, despite overwhelming evidence that even professionals cannot consistently do so.
The firms I met with have built their practices around protecting clients from themselves. They use science-based portfolio construction, maintain discipline during volatility, and focus on what investors can control: costs, diversification, tax efficiency, and most importantly, behaviour.
The New Zealand Reality
Here’s something I hear often: “But surely New Zealand is different?”
It’s not. Market principles are universal. New Zealand shares trade on the same fundamental dynamics as shares in New York, London, or Tokyo. The temptation to believe “it’s different here” often leads to home bias and concentrated portfolios that increase risk without increasing expected returns.
The evidence is unequivocal, regardless of geography. Studies consistently show that the average investor significantly underperforms the very funds they invest in, purely due to poor timing decisions. Research from Morningstar found that investors typically lag their own investments by 1-2% annually simply by buying high and selling low.[5] This behaviour penalty applies equally to investors in Auckland as it does in Austin.
Think about that: a 1-2% annual drag from poor timing decisions alone. Over a 30-year investment horizon, that’s the difference between retiring comfortably and struggling to make ends meet. And it has nothing to do with market returns or fund performance—it’s entirely self-inflicted through emotional decision-making.
What This Means for You
As your advisers, our role isn’t to predict the future or pick winning stocks. It’s to help you stay invested in sensibly constructed, evidence-based portfolios through all market conditions. The science tells us that markets reward patient investors who remain diversified and resist the urge to react to short-term noise.
This matters now more than ever. With 24/7 news cycles, social media investment “gurus,” and the constant temptation to react to market movements, maintaining discipline has never been harder—or more important.
When markets inevitably experience volatility (and they will), remember this: every market downturn in history has eventually been followed by recovery. The investors who stayed disciplined and remained invested captured those recoveries. Those who sold in panic and tried to time their re-entry typically bought back in after much of the recovery had already occurred.
Standing outside that Chicago building, I felt grateful for the legacy of rigorous thinking that continues to shape how we invest today. But the principles that emerged from those halls decades ago remain as relevant now as ever: markets work, diversification matters, costs compound, and behaviour determines outcomes.
The challenge isn’t knowing what to do—science has answered that. The challenge is doing it consistently, especially when markets test our resolve. That’s where good advice becomes invaluable.
Nick Stewart
(Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha)
Financial Adviser and CEO at Stewart Group
References
[1] The Nobel Prize, “Eugene F. Fama - Facts,” 2013, [nobelprize.org](http://nobelprize.org)
[2] University of Chicago Booth School of Business, “Douglas W. Diamond Wins Nobel Prize in Economic Sciences,” October 2022, [chicagobooth.edu](http://chicagobooth.edu)
[3] Dimensional Fund Advisors, “Leadership and Board of Directors,” [dimensional.com](http://dimensional.com)
[4] Dimensional Fund Advisors SEC Form ADV, showing $835.7 billion in discretionary assets under management as of March 31, 2025
[5] Morningstar, “Mind the Gap: The Behavior of the Average Investor,” various years, [morningstar.com](http://morningstar.com)
[6] University of Chicago News, “Alumnus David Booth gives $300 million; University of Chicago Booth School of Business named in his honor,” November 2008, [news.uchicago.edu](http://news.uchicago.edu)