University of Siena Economics Professor Roberto Reno: “Your Article Was Thoughtful, Even If I Don’t Like Too Much the Conspiracy Idea. For What It May Count, I Am Not Pressured by Anyone in My Research”

I have been sending e-mails to numerous people letting them know about my article on The Silencing of Academic Researcher Wade Pfau by the Buy-and-Hold Mafia. Set forth below are the words of the response I received from University of Siena Economics Professor Roberto Reno, followed by my reply to him:

Thanks for your article. I will have a closer look at Pfau’s paper and pass it to students.

However, I have to disagree on a couple of things.

1) The fact that you mention (long-term stock prediction) is also contained in the enclosed paper by Cochrane (admittedly, the more mainstream scholar around) [My guess is that Reno wrote these words quickly and had intended to suggest that Cochrane is NOT the most mainstream scholar around — Rob] and was published in the Journal of Finance (top in the field).

2) It is not strictly true that there is no research on this. Let me enclose a small example from myself. Here we show that, when properly computing standard deviations, presumed long-term strategy with extra returns are actually as effective as random picks. There are, obviously, many other examples. I just supervised an undergraduate thesis on value investment.

Your article was thoughtful, though, even if I don’t like too much the conspiracy idea. For what it may count, I am not pressured by anyone in my research.



Thanks for your kind and balanced and well-informed response. Thanks especially for the two attached articles.
I agree with the point that you are making. There ARE people who say that returns are predictable in the long run at the same time that there are people who say that Buy-and-Hold strategies can work. I think that the best way to describe today’s reality is to say that we are in a twilight zone. We know that the market does not behave the way it would have to behave if it were efficient (there should be no predictability). But we have thus far been unwilling as a society to explore in an in-depth way the IMPLICATIONS of this reality.
If the market is not efficient, it is predictable. If the market is predictable, stocks are not nearly as risky as we have long thought them to be. Wade’s research shows that an investor who is willing to give up following Buy-and-Hold principles can thereby reduce the risk of stock investing by 70 percent (the largest Portfolio Percentage Drawdown goes from 60 percent to 20 percent). That’s huge! We could be doing an awful lot of good for an awful lot of people by publicizing this reality. Also, we could stop economic crises by publicizing this reality. Each of the four economic crisis we have seen since 1870 were preceded by a P/E10 level of 25 or higher. If people knew how bad a deal stocks are once the P/E10 level exceeds 25, most investors would sell once prices became insanely high and that would pull prices back to fair-value levels so the economic crisis would be averted. The economic and political implications here are very far-reaching.
We have thus far held back from doing that. Why? Paradoxically, it is precisely BECAUSE the benefits of exploring these realities would be so great that we hold back from doing so! That sounds crazy but it really makes sense in a crazy kind of way when you think about it. Huge advances make those who did not discover the realities that led to the advances feel bad that they were not the ones who discovered them. There are a lot of Buy-and-Holders who do not want us to move forward because of emotional failings that are common to all humans. My sense is that the Buy-and-Holders are not even aware of their feelings of envy and shame (the humans often experience cognitive dissonance re these sorts of things). But they are there and they are real and they are affecting our ability as a society to learn things we need to know about stock investing in very important ways.
I am trying to take us from the unfortunate place where we are today to the wonderful place where we all deep in our hearts want to be tomorrow. The Buy-and-Holders of course want to experience the benefits of knowing the realities of stock investing as much as everyone else. The tough part is — How can we get past their defenses and help them learn the realities of stock investing without TALKING about the last 30 years of research-based findings? We can’t. We must feel free to talk openly about these matters to make progress. But it is open discussion of the research findings showing that Buy-and-Hold never works in the long run that sets the Buy-and-Holders off. They worry about all sorts of things. They worry that they failed themselves and that they failed their friends and neighbors and co-workers and on and on. And of course there are career concerns and pride concerns. The Buy-and-Holders are in great emotional pain today and I believe that it is the responsibility of everyone in this field aware of this pain to do what he or she can to relieve it.
That’s the goal of my project. I want to help the Buy-and-Holders develop the self-awareness needed for them to react to these findings in the way that deep in their hearts they have always wanted to react to these findings. I believe that great advances await us on the other side of The Big Black Wall.
I understand that my words here relate to emotions and that it is not the norm in the research field to discuss such matters. That is the problem! The core flaw of Buy-and-Hold is its excessive rationality. Investing is a largely emotional enterprise and we can never understand it fully without first coming to accept that we will need to be willing to examine human emotions to become able to do so effectively. It’s hard dealing with the emotional stuff. But my strong sense of things is that the potential rewards of doing so are large indeed. I hope and believe that following the next crash there will be many people (including many who advocate Buy-and-Hold strategies today) who will see the merit of going down this path.
I understand why you say that I am putting forward a “conspiracy theory.” I don’t think I am. But it is a close enough call that I can see how people of good intent would see it that way. I would describe this as a conspiracy of ignorance. The humans were born in ignorance and we develop knowledge over time. When we are on the verge of making huge advances, we get scared because we have grown comfortable with our old ideas. That’s what I see going on here. I view the Buy-and-Holders as heroes and pioneers. They laid the foundation for the huge advances that I believe we will be making in the next few years. I want to be friends with all the Buy-and-Holders. The hostility is all on their end (I say that not as some sort of dig but just to let you know that I feel great affection and respect for my critics because of all the great work they have done). I hate it that I am required by the standards of my profession (I am a journalist) to say negative things about the Buy-and-Holders. There is just no other way to tell the amazing and incredibly positive (despite some surface appearances!) story without doing so. I hope that I always balance the negative things I say with a good bit of telling of the other side of the story, which is every bit as important and true.
If you have doubts about whether other researchers have been intimidated, you might want to take a look at the words of the response I received from Former Financial Analysts Journal Editor Rob Arnott. He told me that young researchers who were planning to do work supporting his ideas were taken aside and told that their careers would be damaged if they did so. This is what happened to Wade. This sort of thing should never happen. This is serious stuff. Research that is not independent is research not fit for publication. I believe that MANY researchers (perhaps MOST) are affected by the intimidation tactics without knowing that they are being affected. We all are social creatures and we all become aware of taboos that may not be violated. Questioning Buy-and-Hold has become taboo in our society. I had one fellow on a discussion board tell me that he had never heard anyone before me describe Buy-and-Hold as a “Get Rich Quick” scheme. But, if the price you pay for stocks affects the value proposition you obtain from them and Buy-and-Holders encourage investors to ignore price when setting their allocations, that is precisely what it is, no? I have spoken to numerous bloggers and financial planners and economists who are aware of the intimidation tactics and of course appreciate how big a story it is and yet hold back from writing about it because they feel “funny” about it. Most of these people have not been directly intimidated but yet they feel and act intimidated all the same. The Social Taboo that holds us all back from speaking openly about the dangers of Buy-and-Hold strategies is a poison that is killing us all, in my assessment.
The full truth is that this was so of me for a long time. I am the person who discovered the errors in the Old School safe withdrawal rate studies. Paradoxically enough, I learned about them by reading one of John Bogle’s books! This was in the late 1990s. I held back from posting about the errors in the retirement studies (they fail to make an adjustment for the valuation level that applies on the day the retirement begins!) until May 2002. I was afraid of what would happen to me if I went public with what I knew. And the reaction I saw was 5,000 times worse than anything I imagined in my worst nightmare. Lots of people either saw that or sense the possibility of something similar happening to them and hold back from speaking out plainly and boldly and firmly as to their views on investing as a result. It’s a mess!
To some extent I am shooting in the dark with these e-mails. I am putting ideas before people and seeing how they react. I am trying to learn in more detail the reasons why we have as a society been so reluctant to talk about ideas that could do us so much good. Each reaction that I get makes the picture a tiny bit clearer to me. So I am grateful to you for taking time out of your day to help me out.
Please take good care.


  1. Rob says

    They sell to whoever will buy, Canyon.

    If everyone is seeking to sell, no one can find a buyer.

    So the price drops.

    That’s how it works.


  2. Rob says

    No, it wouldn’t.

    But the Wall Street Con Men won’t be telling us then how Buy-and-Hold is such a great idea. When the price is much lower, they tell us “Oh, it now appears that no middle-class person should ever have any investment in stocks — just look at how prices have dropped!”

    So millions of middle-class people sell anyway and lock in their losses.

    Then the game starts over.

    If we want to restore confidence in our political system, we are going to need to find a way to get accurate and honest information about what the last 30 years of peer-reviewed academic research says about stock investing out to millions of middle-class people.

    That’s my sincere take re the matter, in any event.


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