The investment of legend David Booth shares his biggest investment tips

• David Booth says that the greatest danger of investors is their fear when the markets are volatile.
• He advises attempt to make market numbers and instead invest on the basis of the living needs.
• He finds cheap stocks by mainly focusing on the price compared to the book value.

Eugene Fama's efficient market hypothesis, which says that the share prices reflect all the relevant information and beating the market, is almost impossible, has served as a core principle for financing.

Fama has continued his work in the portfolio theory and the pricing of Asset for over five decades, while he brought his research into the real world by working with investors like David Booth, who was once his student.

Booth, now chairman of Dimensional Fund Advisors, a company with a managed assets of 777 billion US dollars and over four decades of experience, announced this trip in a documentary with his mentor entitled “Tune The Noise”, who thinks about researching academics and practitioners at the University of Chicago in the 1960s research research Street has challenged for investments. The documentary contains other remarkable Nobel Prize economists with connections to the company, including Robert Merton and Myron Scholes.

In the following you will find an interview with Booth, in which his journey including his thoughts on the current market volatility is discussed.

This interview was processed for length and clarity.

Business Insider: In the film you have given an explanation that you do not have to predict the future, but instead concentrate on what can happen. This is a way to say, don't look at the bad ones, look at the good opportunities. What do you think can happen in markets today?

David Booth: As we all know, individual stocks can go to zero; You can lose 100%, but you won't lose 100% on the market. And in the worst times in depression, the market had decreased by about 40%, which is quite difficult to master, but that's why they don't have to insert all of their money into stocks.

If you have half of your money in stocks and the market has dropped by 40%, you have dropped by 20%. So it is about mastering the uncertainty of the markets by checking the percentage in shares. And if you are very afraid of stocks, you might want to take back something.

I would not recommend planning short -term steps. There is only no evidence that this really works. So we think that you have a look at the markets and work and find a reasonable solution. And then you would like to pay attention to what is going on on the market and find out: “Do I do something different, based on what happened on the market or what happened in my personal life?”

For example “I won the lottery. Maybe I would like to invest more in shares'. If I decide to retire, you may want to cut back. Something like that. So make sure what is going on on the market. I mean by planning. Do not try to predict what will happen on the market. It's like life. Only a few of us could have predicted 20 years ago where we would be today. But we adapted somewhere on the way, and when we developed a plan, we noticed that we had to adapt to everything that was going on and had to find a new way forward.

The current trade wars don't seem to have an end. We see tariff threats and then the threat to fraudsters and then encounter the threat to counter -tariffs. How do you navigate on the market? Is that just noise or are there considerations that investors have to take?

Booth: The market seems to say: “Whatever is going on is not very good for stocks.” But you cannot record this information and say: “Okay, well, I think I will come out of the market.” Because the market has already reacted. If you do not know more than the market, you have to sit back and say: “Look, state measures lead to the fact that prices move”, but if you are not faster and smarter than everyone else, you can't do much, except that you look at the result and say: “Okay, based on what happened, is something that should do differently?”

And there can be good reasons to make something different, but not try to measure the market. Perhaps you want to do things differently, because with less money in your pocket there may be some things you don't buy that you think about buying.

In your opinion, what is the biggest mistake that you make in the markets in the markets today, regardless of whether it is institutional or retail?

Booth: Well, in both cases there is a similar problem that is really hard for us at the moment, which is just afraid. Every time there is great and uncertainty, it creates more fear. We have an objective measure of uncertainty, namely the VIX index that has been increased lately, and if this happens, the stocks drop and rise. And the worst mistake that people make is to count short -term steps.

They have a period of time, like now, with a lot of fear, and they go: “Oh man, I'm stressed. I think I'll get out. 'And then the market goes instead of going down, they climb, they go: “Well, I can't get in now. The train has already left the train station. 'So it is such a behavior that we help people help people to achieve a good long -term investment approach.

You have explained that the lower the price is the price for a share, the better your return. But the open question is lower price for what? What are some of the rules that you look at when you try to find a fairly cheap inventory?

Booth: At the moment there is almost an entire industry in the academic world to explore what is the best way to define a low price stock. And everyone is pretty good. None of them are perfect. Eugene Fama and Ken French have a tendency to use; We focus primarily on the price compared to the book value, but this low price shows whether you will carry out a price compared to dividends or price compared to income. In our view, the price of book value according to book value seems to work best.

You like art. Do you choose your art how you select your shares?

Booth: Well, I tend to be interested in minimal art. The thing with minimal art may be at first: “My goodness, I could have done that. These are just a few squiggles'. Well, you couldn't. It is much more complex. And above all the big sculptures that I collect, there are a lot of technical and structural work that have to go on. And what comes out is something that looks pretty simple, but it was actually quite complex underneath. And I think that describes that. We try to describe things in a simple way, but investing is not easy. It is complex. And sometimes, in our efforts to find reasonable, simple ideas, people go, “my goodness, that's too easy”. But under these ideas there has been only an enormous amount of research by incredibly clever people in the past 60 years, many of whom have received Nobel Prices. If what we do sound just sounds, then what we are striving for. But trust me, it is quite complicated underneath.