The Greaney Goons threatened to send defamatory e-mails to Academic Researcher Wade Pfau’s employer to get him fired from his job. Wade had seen how the Goons operate up close and personal at the Bogleheads Forum and at Goon Central and at my site. He knew they were capable of following through on their threats and desperate enough to try just about anything. He expressed his worries to me re how the Goons might destroy his career.
All that said, I do not believe for two seconds that the threats made by the Greaney Goons were Wade’s only concern with publishing more research showing that Valuation-Informed Indexing has throughout the 140 years of stock-market history available to us always provided far higher returns than Buy-and-Hold at greatly reduced risk. Wade had LOTS of concerns. And properly so. There are lots of powerful people who have made careers pushing Buy-and-Hold. They are lots of powerful people who have made many millions of dollars pushing Buy-and-Hold. There are lots of powerful people who will be faced with billion-dollar lawsuits if middle-class investors learn what the last 30 years of academic research really says about the chances of Buy-and-Hold strategies ever working out well for long-term investors.
Wade’s research promised to revolutionize the field. There are a good number of people who do not want to see the field revolutionized. Wade was stepping on the toes of people who have demonstrated for many years now that they have ways of teaching a lesson to those who step on their toes.
Academic researchers live or die by their Peer Review reports. Wade shared with me two Peer Review reports for his revolutionary research. He was greatly discouraged by the words he read in those reports.
One of the reports was flat-out insulting. It stated: “We did not find the paper’s incremental contribution to the academic finance literature, assuming the analysis proved to be correct, rose to the level that we are seeking for papers in the JFR.” There’s nothing that can be said re that one. That one is a sick joke.
My sense is that it was the second Peer Review report that hit Wade harder. When he learned from our discussions how stock investing really works, he had big dreams for what he could do with this knowledge. He envisioned himself being published in the Journal of Finance, the most prestigious journal in the field. I told Wade that he was on his way to winning a Nobel prize. He didn’t permit himself to enjoy that crazy a dream. But he didn’t entirely rule out the possibility. He held it at a distance. Had his research really been published in the Journal of Finance, I am confident that he would have begun to seriously entertain hopes of winning a Nobel prize.
He was planning on doing lots of follow-up research. He told me when I praised his initial study comparing Valuation-Informed Indexing and Buy-and-Hold: “You ain’t seen nothing yet!” He wanted to see that initial research win at least a small percentage of the praise it merited. Then he would take things to the next step. That’s how bright, ambitious (in the good way) and prudent people proceed.
That second Peer Review Report killed that dream. The first one could be explained away as a quirk of one particular Peer Review team. But two negative reports? Given to a guy who was not accustomed to hearing negative words about his research work product? When Wade saw that second discouraging report, he realized that the mountain he was attempting to climb was a lot higher than he had anticipated. He was either going to have to prepare himself for an ordeal or — Move over to a mountain a bit less steep. He elected to move over to a mountain a bit less steep. He was probably thinking in the back of his mind that he could return to the first mountain at a later time if circumstances changed enough to make that one appear more imminently climbable.
What is the story with that Peer Review report? That’s a public policy issue. We need to teach millions of middle-class investors how stock investing really works if we are to overcome the economic crisis and get things back on the right track. If the best work of the best researchers gets shot down in Peer Review, we’ve got a serious problem on our hands, Houston.
There’s part of me that is enraged that Wade’s work did not receive a more enthusiastic reception. The research revolutionizes the field. It tells us the things about stock investing that we should have learned 30 years ago but did not because no researcher prior to Wade picked up on the implications of Shiller’s amazing 1981 findings.
There’s another part of me, though, that is not so shocked by the language in the Peer Review report. I have been writing about these matters on the internet for 10 years. I have seen lots of reactions that were 50 times worse than what Wade saw in that Peer Review report. The people who serve on Peer Review committees are humans too. They are subject to the same fears as the rest of us. They are subject to the same prejudices as the rest of us. They are subject to the same emotional addictions as the rest of us. My guess is that Wade was just unlucky enough to have one of those darn humans assigned to the Peer Review Committee for his research paper!
I like the comment that one of the peer reviewers made on Wade’s paper. He said: ““The elephant-in-the-room question is — What is the ultimate criterion for one to conclude with confidence that one strategy is better than the other?” That’s a pretty darn intelligent question. I have been promoting Valuation-Informed Indexing strategies on the internet for 10 years now. I’ve heard lots of reactions to the concept. I’ve heard many reactions less intelligent and less on the mark than that one. So I don’t feel entirely right slamming the Peer Review Team that so discouraged Wade. That comment indicates to me that the team approached the paper in at least a somewhat serious way.
I do slam the Peer Review Team for their conclusion, however. Their conclusion does not follow from the analysis evidenced in that comment. Yes, it is true that we need to identify with confidence the superior strategy. That’s the ultimate goal. But what if we genuinely do not know today whether Buy-and-Hold or Valuation-Informed Indexing is superior? What do we do, fake it? Do we pretend that we maintain confidence in Buy-and-Hold even though we have seen research that shakes that confidence?
What we must do is launch a national debate on this question of which strategy is superior. This question is far, far, far too important to duck. We need to resolve the question. No one investing expert, no one journalist, no one academic researcher, no one Peer Review Team can do that. We all have biases. We all have come from different sets of life experiences. To come to a conclusion re which strategy is superior, we must stage a national debate in which we all work together and we all get to have our say.
Yes, we must ultimately identify one strategy as superior. But that’s a process that will take time. To identify one strategy as superior prior to having the debate is to short-circuit the learning process. Is there some reason to believe that Buy-and-Hold is superior? There is not. Buy-and-Hold was developed at a time when long-term timing was not a practical option (index funds had not yet been created). So the researchers responsible for development of the Buy-and-Hold Model never tested whether long-term timing works. Wade did. He found zero reason to believe that Buy-and-Hold can work. Given that there is zero reason to believe that Buy-and-Hold can work and a great wealth of evidence showing that Valuation-Informed Indexing can work, it is not even remotely reasonable to conclude prior to any discussion or consideration of the issue that Buy-and-Hold is superior.
We need a national debate to tackle the question raised by the peer reviewer. And that’s just the purpose that peer reviewers should understand that academic journals serve! By publishing Wade’s research rather than rejecting it, the journal would have been making a statement that the critically important question of whether Buy-and-Hold or Valuation-Informed Indexing is superior was being put on the table for consideration. We would have seen many research articles submitted to many academic journals as a result. We would have had a great discussion. And, when the time was right, the issue would have been brought to a successful resolution.
The rejection of Wade’s paper didn’t help us answer the question raised by the Peer Review Team. It kept us in the dark regarding that important question. The Peer Review Team properly identified the question that matters and then failed to execute its duties in the manner required to see that that question received a good answer.
That said, I believe that Wade permitted himself to be overly discouraged by the two rejections.
Wade made a great comment in one of our conversations. He noted that there is a saying among academic researchers that all truly worthwhile papers are rejected at least once. That’s it! That’s the insight that applies!
Why is it that all truly important papers are rejected at least once? It’s because most papers are ordinary stuff, stuff that is perfectly fine in its way but stuff that is not going to change the world in any significant sense. Peer reviewers don’t experience much difficulty seeing the value of those papers because those papers conform to their expectations about how stock investing works. Papers that change history don’t fit the mold. Papers that change history are hard to accept. Papers that change history are unsettling. Papers that change history threaten to make you look like a fool if you endorse them because others may see them as strange and weird and different.
I run into this sort of concern all the time. People say my investing views are “controversial.” They say it in a way that suggests that that’s a bad thing. Huh? I’m a journalist. We live for controversy, Nobody reads newspapers that hint at no controversies. Controversy is good!
If a controversial claim ends up not being true, that’s no good, to be sure. But controversy by itself is not a bad thing. A controversial claim must be scrutinized carefully. Controversy for the sake of controversy serves no good purpose. But a controversial claims that stands up to scrutiny is the best sort of claim there is. It is controversial claims that stand up to scrutiny that change the world in a positive and constructive and life-affirming way.
Wade should have hung in there. Support for Buy-and-Hold is fading. Support for Valuation-Informed Indexing is growing. I have been taking vicious hits for 10 years now. I feel that Wade had it relatively easy. I essentially handed him a Nobel prize in Economics on a silver platter. He was going to need to demonstrate a little bit of patience before raking in all the praise and glory. But, presuming that Shiller is right, we will be seeing the next price crash within a few years. That’s when I expect to see a big change in public opinion on the question of whether honest discussion of the last 30 years of academic research should be permitted or not.
The Peer Review process has certainly let us down. The purpose of academic research is to teach us new things and Wade’s research showing the superiority of Valuation-Informed Indexing over Buy-and-Hold puts us on a path to discovering an entire universe of new things. His work should have been accepted immediately at the most important journals in the world. Still, the research was accepted — after two rejections, Wade was published by a perfectly acceptable journal. Had Wade stuck at it, his reputation would have grown and his follow-up studies would have been published by ever more prestigious journals. When you are publishing change-the-world stuff, you have to understand that it takes time to persuade the world that it needs changing.