Just as a broadly diversified portfolio includes companies with high and low credit quality, investing in countries with both high and low ratings is equally sensible.

A subset of US small cap growth stocks consistently underperforms the small cap universe. Dimensional has begun to exclude these extreme poor performers from buy eligibility and sell them opportunistically. Markets outside the US are being studied to find out if similar steps are warranted.

Truman Clark, retired Dimensional executive, explains the advantages of seeking exposure to different risk dimensions through core equity strategies.

Many studies have discussed whether securities are efficiently priced. The available evidence indicates that professional money managers have not been able to exploit cost-effectively any pricing errors that do occur.

A look at the Fama/French factor returns reveals presidential elections don't seem to impact market performance. However, history shows that factor performance in the month preceding an election seems to predict reelection results.

The unpredictability of changes in interest rates has a simple implication that is the basis of Dimensional's bond strategies. Specifically, current prices of discount bonds are good estimates of the prices of bonds with the same maturities one period from now.

Some of the important financial theories underlying the behavior of stock returns are summarized. Results of several empirical studies into these theories are also described.

In spite of having constructed a diversified portfolio, the disciplined investor will still notice at any given time a small number of highly volatile stocks that seem to threaten to undermine the goal of the portfolio. This, however, is an example of random error that must be tolerated but can be explained.

Despite recent arguments to the contrary, there is no evidence of book-to-market ratio (BtM) becoming irrelevant for identifying value stocks. Compared to popular alternatives, BtM is at least as good at producing dispersion in average returns.

Old-school indexers claim that holding anything beyond the market portfolio is akin to stock picking. But market risk is only one factor driving returns, and an index fund that takes advantage of other dimensions of risk is not betting—it's the new face of indexing.

The unusually strong performance of large cap stocks in the late 1990s is put into perspective. Patterns in the historical returns represent the normal drift of a random walk.

A transcript of Rex Sinquefield's opening statement in a debate about active vs. passive management with Donald Yacktman at the Schwab Institutional conference in San Francisco, October 12, 1995.