Financial Analysts Journal

Joachim Klement, CIO at Wellershoff & Partners: “I Can Confirm Wade Pfau’s Experience. Whenever I Send My Papers to the Financial Analysts Journal or Similar Traditional Journals, I Get Rejected.”

July 12, 2013 by Rob

I have been sending e-mails to numerous people, letting them know about my article reporting on The Silencing of Academic Researcher Wade Pfau by The Buy-and-Hold Mafia.

Yesterday’s blog entry reported on my correspondence with Joachim Klement, Chief Investment Officer at Wellershoff & Partners, Inc. Set forth below is the text of the e-mail that Joachim sent me in response to my e-mail to him reported on in the earlier blog entry:

Hi Rob

Well, I am in the expert panel of Expert Investor Europe and just recently talked about these things in an interview that will be published soon. Also my paper on the Shiller-PE is under review at the Journal for Portfolio Management.

But I can also confirm Wade Pfau’s experience. Whenever I send my papers to the Financial Analyst’s Journal or similar traditional Journals, I get rejected…

Best regards

Joachim

I wrote back:

>
It’s a weird coincidence that you mentioned Financial Analysts Journal. I don’t follow the journals so it is possible that I am confused. But I believe that Rob Arnott was the editor of that journal a few years back. Is that right?

>
Rob and I had a discussion about this stuff just yesterday. He said that he has not been able to get a journal to publish an article he wrote with Harry Markowitz which shows that a modest amount of error in stock prices would fully explain the Fama-French size and value effects. He wrote: “Journals turning down a Nobel Laureate? Yep, it happens.”

No matter how many times i hear about or see something like this, it amazes me. I am NOT an investing expert. I am a journalist. So I tend to focus on the public policy implications, which are HUGE. If overvaluation is a real thing, then it was the promotion of Buy-and-Hold that caused the economic crisis. All that you need to do to show that is to calculate the amount of overvaluation experienced in the U.S. market in 2000. It was $12 trillion. If that $12 trillion was all phony gains fated to disappear over the course of the next 10 years or so, then $12 trillion of spending power was fated to disappear from the hands of the U.S. consumer. There’s your economic crisis!

I am sorry to vent. I just see this as being so big that I cannot get over it. I understand that people have different points of view. That’s normal and healthy. But as someone outside the field I feel that people inside the field have become immune to appreciation of the significance of this. People have come to accept that it takes time for new ideas to catch fire in the academic community and are just sitting back waiting for things to happen. They are not grasping how big this is.

Shiller’s ideas turn the fundamentals of our understanding of how stock investing works on their head. So we just need to figure out for sure whether he is right or not. I don’t blame people for proceeding slowly. That makes all the sense in the world. You don’t want to rush to adoption of a new understanding of the fundamentals. But we cannot advance our understanding without full and frank discussions in which lots and lots of smart people participate, including not just academics but also policymakers and journalists and all sorts of other stakeholders. We ALL have an interest in having the stock market function properly and in not seeing overvaluation corrected through crashes and the economic crises that follow from them.

I apologize for directing so many words at you. I am to a large extent thinking out loud. My conversation with Arnott yesterday sort of blew my mind. He takes it in stride. He says that I am right on all the substance questions. He doesn’t see what is happening on the process side as being so shocking. I sure do! A Nobel Laureate cannot get work addressing an issue of fundamental importance published in a top-rate journal — Yikes! I don’t think that the average investor has any idea whatsoever that this sort of thing goes on. I say that because I think of myself as an average investor. I am 100 percent shocked by this stuff.

Is there any place you know of where people explore the process issues? I feel that this side of things just falls between the cracks. The substance side gets addressed in the journals (or in some cases does not). The process side? I see that as something that we should be hearing about in the New York Times or the Wall Street Journal or in a best-selling book. But it has not yet happened. Politicians spend tons of energy discussing the Federal budget deficit and the economic crisis. We need to have them directing their energies to dealing with the true CAUSE of the crisis if this in fact is the true cause. How do we get them doing that when the journals won’t even publish super-important articles?

I don’t expect you to have answers to these questions. I am grateful to you just for your willingness to engage in a little back and forth. I am just venting because to my eyes this is so crazy. If you have any thoughts as to how I could get a national debate launched on the process side of this matter (it’s the process side that I most care about as a journalist), I sure would be grateful if you would pass them along. Is there anyone that you can suggest that I might talk to about doing something on the process side?

If not, I 100 percent understand. I of course get it that none of this is your doing. I just feel that we have a matter of huge public policy significance that is falling between the cracks (most journalists feel that investing is too complicated for them to understand and thus elect to let the experts take care of it) and that I need to figure out how to get the process side of this on the national agenda.

Rob

Former Financial Analysts Journal Editor Rob Arnott to Rob Bennett: “I’m Too Embroiled in My Own Controversies to Magnify Them Further With Collaboration. Your Ideas [About Valuation-Informed Indexing] Are Sound.”

December 13, 2012 by Rob

My last two blog entries reported on e-mail correspondence between Former Financial Analysts Journal Editor Rob Arnott and I in which we discussed the brutal (my word) intimidation tactics that have been employed by Buy-and-Holders in recent years to block the publication of academic research revealing the deficiencies of the “status quo” (Arnott’s phrase) thinking on how the stock market works. He reported that he has had difficulty finding journals to publish his more controversial work and that articles of his that challenged the conventional thinking of today have generated hate mail. In fact, he has not yet been able to find a journal to publish an article on an important topic that he co-authored with Nobel Laureate Harry Markowitz! (I checked his e-mail three times when writing these words to be sure that I did not just imagine this part while experiencing a fever.) I expressed my shock at this report and noted that I believe that the reason why I feel a greater sense of urgency re solving the problem is that my perspective is that of a journalist rather than that of an investing expert and I thus tend to focus on the public policy implications of the 30-year cover-up of Yale Economics Professor Robert Shiller’s “revolutionary” (Shiller’s word) findings showing how stock investing really works (not at all how the Buy-and-Holders have been for many years now telling millions of middle-class investors it works).

Late in the afternoon of December 6, 2012, Arnott replied to my e-mail of that morning. He wrote: “I am very pleased that you were not offended at my frank advice. I’m too embroiled in my own controversies to magnify them further with collaboration. Your ideas are sound. Your stridency is unhelpful to your cause. Anyway, all the best.”

I immediately sent back the following words: “I understand. I hope that I am not guilty of stridency. You are certainly not the only person who has said that I am. So I am going to need to work harder to examine my own behavior. I wish you all the best as well.”

I then sent an e-mail to Vanguard Founder John Bogle, Four Pillars of Investing Author William Bernstein, and Academic Researcher Wade Pfau saying: “Since the three of you were copied on the e-mail that I sent to Rob Arnott this morning, I wanted you to see the resolution of our conversation as set forth in his e-mail to me this afternoon and then my response to him. And I of course wish the three of you all the best that this life has to offer as well. Please take good care.”

The following afternoon I received a final e-mail from Rob Arnott containing the following warm message: “Have a wonderful holiday season!”

Rob Bennett to Former Financial Analysts Journal Editor Rob Arnott: “The Illustrations You Offer of the Problem of Buy-and-Hold Dogmatism Are Shocking. I Know From My Discussions With Financial Planners and Bloggers That Many Others Have Had Similar Experiences. This Must Stop. I Feel More of a Sense of Urgency re This Matter. My Focus Is On the Public Policy Implications. We Are Living Through A Public Tragedy of Epic Proportions.”

December 12, 2012 by Rob

Yesterday’s blog entry reported on an e-mail that I received from Former Financial Analysts Journal Editor Rob Arnott describing the hostility that his research has generated among “guardians of the status quo” in the investing field. Commenting on my report of how Buy-and-Hold Goons threatened to get Academic Researcher Wade Pfau fired from his job after he published research showing the superiority of Valuation-Informed Indexing strategies over Buy-and-Hold strategies, he said that he has on occasion experienced difficulty in getting his work published (in fact, he has not yet been able to find a journal to publish an article co-authored by Nobel Laureate Harry Markowitz!) and that journals that have published his work have received “hate mail” after doing so. Rob castigated me in his e-mail for embracing “a victim mind-set” and for characterizing those who threatened to send defamatory e-mails to Wade’s employer as “Goons.” He copied Vanguard Founder John Bogle and The Four Pillars of Investing Author William Bernstein, whom he described as personal friends and whom I noted had failed to speak up on Wade’s behalf when he was under attack, on his response to me. Set forth below is the reply that I sent early on the morning of December 6, 2012 (I also copied Bogle and Bernstein, as well as Wade Pfau):

Rob:

Thanks much for your response. I have been a huge admirer of your work for years. So it was a thrill to receive it. Your frank and balanced and helpful words have added a nice bit of good cheer to my Thursday morning.

I understand that all you know of my work is the one article that I linked to in the e-mail. It pains me to think that the words of that article may have planted the idea in your head that my respect and affection for John Bogle might be any less than your own. In my ranking of the most important investing analysts of all time, Bogle ranks second only to Robert Shiller. I love the man. I admire his accomplishments. I don’t want there ever to be any doubt in anyone’s mind re that aspect of the question. I also of course feel a good bit of respect for the others mentioned in your e-mail, and, in full truth, for all of the Buy-and-Hold pioneers. All of the work that I have done is built on the Buy-and-Hold Model. There would be no Valuation-Informed Indexing today had a number of smart and good people not rolled up their sleeves and did the work needed to generate the many powerful insights that have helped millions to come to a better understanding of how stock investing works.

The illustrations you offer of the problem of Buy-and-Hold dogmatism are shocking. I know from my discussions with financial planners and bloggers that many others have had similar experiences. This must stop.

You say that “that’s life” and that “life isn’t always fair.” That’s so. But our job is to spend every waking hour pushing in the direction of fairness, no? That’s the struggle. That’s what the work that we all do is all about. We will never succeed entirely. But we always keep pushing in that direction. That’s how Bogle achieved what he achieved, is it not? Bogle met resistance in his early days. He soldiered on. The spirit that he possesses that caused him to fight is the cause of much of my admiration of the man. If I were to give up in the face of frustrations, I wouldn’t in the end be much of a friend to our mutual friend John Bogle, in my own assessment. So I always fight on with the aim of bringing things to a better place over time.

I of course agree that Bogle (and all others) must be true to his own beliefs. If he didn’t criticize the aspects of my work that he does not find convincing with as much gusto as I criticize the aspects of his work that I do not find convincing, I couldn’t feel the respect for him that I want him to feel for me. A friend criticizes perceived deficiencies in a friend’s work not out of any animus but out of a desire to help the friend become his better self. That’s the spirit in which I have found fault with one aspect of Bogle’s teachings (the idea that long-term timing is not required for investors seeking to Stay the Course in a meaningful way) and that’s the spirit in which I hope in days to come he will be finding fault with whatever aspects of my teachings he finds unpersuasive.

My sense is that there is only one point re which you and i have a different take of some consequence. We are both seeking to push the general understanding of how stock investing works in the same direction. But I think it would be fair to say that I feel more of a sense of urgency re this matter. My guess is that the reason for this lies in our different backgrounds. I am NOT an investing expert and I do not pretend to be one. I am a journalist. My focus is on the public policy implications of the dogmatism. I would be grateful if you would take a look at two articles that I have written that argue that the heavy promotion of Buy-and-Hold strategies was the primary cause of the economic crisis: (1) The True Cause of the Current Financial Crisis; and (2) The Bull Market Caused the Economic Crisis.

Say that there is some truth to what I argue in these articles. We are living through a public tragedy of epic proportions. One the one hand, Wade’s research tells us what we need to know to reduce the risk of stock investing by nearly 70 percent (he shows that the maximum portfolio drawdown percentage is 60 percent for Buy-and-Holders and only 20 percent for Valuation-Informed Indexers). On the other, we are on our way to the Second Great Depression because we have as a society elected to impose a Social Taboo to block the frank discussion of these matters. We all want the same things. There is not one person alive, Buy-and-Holder or Valuation-Informed Indexer, who wants to see us fall into the Second Great Depression or who doesn’t want to know how to invest effectively. How did we ever get ourselves into such a crazy fix? It’s all a quirk of history. Had Shiller published his research showing that valuations affect long-term returns in 1971 rather than in 1981,the name of the book would have been “A Valuation-Informed Walk Down Wall Street” and we would today be living in the greatest period of economic growth in U.S. history. How do we get from this awful place where we are today to the wonderful place where we all deep in our hearts want to be tomorrow?

We don’t get there by calling each other “Goons” — I think that much is fair to say!

I don’t want to call anyone names, Rob. It’s the last thing I want to do. If you read my interactions with the Goons carefully (I post daily at the Goon Central site), you will see that I call those who attack me so relentlessly and in such brutally personal terms “friend” more often than I call them “Goon.” The Goons are my friends, Rob! These are people I know from the days when we worked together to build the Motley Fool’s Retire Early Board into the most successful board in that site’s history.

Why do I EVER call them “Goons? I am trying to draw attention to a problem. The death threats really did happen. The tens of thousands of acts of defamation really did happen. The board bannings really did happen. The threats to get Wade fired from his job really did happen. These people are in emotional pain. If you have any doubts whatsoever about this, please take a look at the article I wrote detailing the efforts of hundreds of non-Goons to keep the Retire Early and Indexing boards and blogs open to civil and reasoned and honest discussion of all investing issues.

We shouldn’t be ignoring this emotional pain. We should be trying to help our friends overcome their pain. THAT”S PART OF THE JOB OF AN INVESTING ADVISOR.

Many of the experts in the field don’t see it that way today. They feel that investing analysis is a numbers exercise, that there’s no place in this field for the discussion of human emotions. This is the core mistake that caused all the trouble, in my assessment. When we see people engage in the sorts of behavior that I am referring to here (and which you have obviously experienced as well in somewhat different form because your work is not as internet-based as mine), we need to try to figure out what is going on and to address the problem. I don’t want to ever have to use the word “Goon” again. I won’t ever need to if people like Jack Bogle and Bill Bernstein and Wade Pfau make clear that they expect the published rules of all of the boards and blogs to be followed. When they fail to do this, they send a signal that in this one area the normal rules of social intercourse that keep us all human do not apply. WE NEED TO STOP SENDING THAT SIGNAL. When we start sending the right signals, good things will start happening. Lots of people want to learn but are afraid to speak up. As more and more people come to feel safe in speaking up, the entire social dynamic will change. We will reach a tipping point and things will begin getting better and better and better each day rather than worse and worse and worse. New ideas cannot grow until we create an environment in which sincere and polite and respectful questioning is permitted. And even encouraged!

That’s where I am coming from, in any event. I detect a suggestion in your e-mail that you would be willing to help in an effort to pull things in a positive direction if I would be willing to engage in private discussions. Of course! Why the heck not? I want to know about any ideas that you or Jack or Bill or Wade (I added him on the Cc for my reply) have for the five of us working together to transform these discussions into something viewed as a 100 percent positive for every single person involved in them. Let’s make that happen! Please be assured that I will do anything that I view as even remotely reasonable that you or Jack or Bill or Wade suggest. Please just shoot me back an e-mail with any suggestions or questions or concerns or thoughts or proposals.

Thanks again for getting the ball rolling on this, my plain-speaking friend.

Rob