In 1981, David Booth and Rex Sinquefield founded Dimensional Fund Advisors based on the premise that a diversified portfolio with a tilt toward small-company stocks could serve investors well over the long run. It was a bold move, especially since it had yet to be tested in live funds.
It remains a bold move today. Given the market’s near-term volatility, we must continue to assess our evidence-based investment strategy across years or even decades. Then and now, a quarter of data is but a snapshot that, by itself, neither substantiates nor refutes our approach to seeking long-term wealth.
As reported in Dimensional’s most recent Quarterly Market Review, first quarter 2015 returns happened to play well into our storyline. After a year in which globally diversified portfolios underperformed concentrated US large company stock positions, markets reversed course this quarter and placed US equity toward the bottom of international rankings based on recent returns (See slide 9, “Select Country Performance” in this quarter’s report.)
Last year’s trends could just as easily have continued and the results would not have altered our strategy. In describing its founding principles in its 2014 “Matrix Book,” Dimensional wrote: “The decision to rely on academic – not Wall Street – research was not an accident, even though it seemed strange at the time. Academic ideas are at the core of Dimensional’s approach.”
They are at the core of our approach as well. Let us know if we can answer any questions about our continued application of evidence-based investing.