Editor's Letter 4
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Where Have Thirty Years Gone? A trap for logicians? Peter L. Bernstein ll well-behaved papers in finance begin with the cles), Franco Modigliani (one article), Paul Samuelson (six statement of a hypothesis or an assertion about articles), William Sharpe (eight articles), James Tobin (one theory. Most articles then go on to present some article), if we include the ten marvelous articles contributed by historical background on the subject matter and, Fischer Black, in the high confidence that he would have Aat greater length, empirical data to substantiate the author’s become a laureate if his life had not been cut short before option arguments. On this occasion of the thirtieth anniversary of pricing theory won the award. Black and Samuelson both The Journal of Portfolio Management, I take the liberty of appeared in our maiden issue in the fall of 1974. reversing the standard sequence. What has all that massive accumulated effort by authors, editors, referees, copy editors, printers, proofreaders, and the EMPIRICS staff at Institutional Investor added to the stock of human knowl- edge? We have every reason to believe the Journal has added Arithmetic was my first thought when I sat down to draft a great deal, judging by the frequency of citations in other pub- this essay. Four issues a year averaging eleven articles per issue lications and by the continuing high quality of both authors and over thirty years works out to 1,320 articles. The articles on their contributions. average use about six pieces of paper, each nine inches long. That is a necessary condition of success, but it may not by guest on September 27, 2021. Copyright 2004 Pageant Media Ltd. Stretched end-to-end, the nearly 8,000 pages printed over be sufficient. What kind of story does the Journal have to tell? thirty years of The Journal of Portfolio Management would reach And what does that story tell us about the shape of future con- 5,940 feet, all the way from 42nd street to 64th Street in New tributions? I attempt to answer these questions first by draw- York. ing on our experience in the past, and then venturing a forecast A staggering number of people made this record possi- based on what that experience reveals. ble. Through Spring of 2004, we have carried contributions by 1,858 different authors; many of them had coauthors, but HISTORY 411 of them appeared more than once. Martin Leibowitz wins https://jpm.pm-research.com the prize for the most contributions; nineteen entries stretch- Thirty years ago, the only serious publication designed ing from Spring 1975 through Spring 2004. Mark Kritzman specifically for professionals in investment was the Financial and Meir Statman are tied for second place behind Marty at Analysts Journal. For many years up to that time, the FAJ was fifteen articles each. dry stuff and often irrelevant for practitioners hoping to accom- To give you a sense of where professional fixed-income plish more for their clients than just picking stocks or bonds. Downloaded from investors stood in Spring 1975, here is what Marty’s article An index of articles in the FAJ for 1945–1966 gives precisely then was about: “The three sources of bond returns are coupon one entry for “portfolio management,” and even that is qual- income, interest-on-interest, and capital gains. Here is a sys- ified by: “See Investing, Investment Management, and Various tematic framework for explicitly cranking each into the bond Institutions.” Markowitz’s seminal paper, “Portfolio Selection,” swap decision, with particular attention to their impact on which had appeared in the Journal of Finance in 1952, had pro- volatility of returns.” And then, in what would turn out to be voked fewer than twelve articles in the FAJ by 1966, compared typically wide-ranging Leibowitzian thinking, he adds, “and to four pages of listings for “security analysis,” forty-one arti- some intriguing implications for growth stock investing.” cles on growth stocks, and twenty-four articles on gold.* Thirty-five contributions came from eight different win- By the early 1970s, and with the rapidly changing invest- ners of the Nobel Prize in Finance—Daniel Kahneman (one ment landscape, Jack Treynor had become editor of the Finan- article), Harry Markowitz (six articles), Merton Miller (two arti- cial Analysts Journal, and it was beginning to address some of House by guest on September 27, 2021. Copyright 2004 Pageant Media Ltd. https://jpm.pm-research.com Downloaded from 30TH ANNIVERSARY ISSUE 2004 THE JOURNAL OF PORTFOLIO MANAGEMENT 3 the material from modern portfolio theory. I read the FAJ Evidence of the stimulus we had provided was soon carefully then, even though wide swaths of it were beyond in coming. All but three articles in Volume II, Number 1, my understanding. I was convinced there would be an came in over the transom. One big name I solicited back important market for comprehensible articles on these sub- then was James Lorie at the University of Chicago, jects. If the authors could write in a style that people would famous for the Lorie-Fisher study of market returns. enjoy (or if the editor could manage to do a good job of Lorie took a dim view of the Journal’s future, predicting translation), practitioners might actually read the articles. we would be able to recruit marquee names no more than I approached Gilbert Kaplan, founder of Institutional once at best. Like many forecasts in this area, Lorie’s was Investor, with whom I had worked closely when he wrong, as my earlier analysis demonstrates. launched his sparkling publication. I told him he was In many ways, the more interesting development ignoring important work on investing, material his read- for me was the arrival of papers from unknown young ers should be learning, but he laughed me off, claiming people like Rob Arnott and Mark Kritzman, of whom that theories of portfolio management and market behav- nobody had ever heard when we published them but who ior had no place in Institutional Investor. had important contributions to bring our way. One By early 1974, as inflation and the go-go years were young man who especially impressed me was named colliding in what would be a tremendous smash in both Frank Fabozzi; his first contribution appeared in Fall bond and stock markets, Gil changed his tune. This time 1978. it was he who came to me, proposing a new publication In those days, I was editor, copy editor, and referee to deal with the subject matter I had been pressing him as well. Except for a few times I turned to a more knowl- about. He selected the title of The Journal of Portfolio Man- edgeable friend for advice, I selected all the articles on agement, and told me I had complete freedom over the my own—although I was still on the learning curve even content and the selection of authors, without any inter- though increasingly educated by the first-class contribu- ference from any other part of his company. tions that came along. But I saw the Journal’s mission as I had to scurry around to have everything set for more than creating an arena where practitioners and aca- an October publication date, including a panic of proof- demicians could meet and begin to understand each reading galleys while on an August vacation at Montauk, other. I was determined to create a publication people Long Island. I had invited all the contributors to that issue, would read. and some of the names resonate today, such as Keith by guest on September 27, 2021. Copyright 2004 Pageant Media Ltd. Most contributors had no idea how to write with Ambachtsheer, Fischer Black, Dean LeBaron, Stephen clarity and grace, forcing me to spend many hours rewrit- Rogers, Paul Samuelson, James Vertin, Wayne Wagner, ing articles. I also produced all the abstracts in the table of and Arthur Zeikel. contents, and provided snappy subtitles for each article. Much of the 1974 issue would have relevance to the In time, I grudgingly gave up most of the copy- investment world of 2004. Vertin bemoaned the recent editing and persuaded Kaplan to let me hire a professional disasters in portfolio management that led “customers [to in the field. Thanks to our long-time copy editor Patri- be] increasingly suspicious, hesitant, and downright skep- cia Peat and her excellent predecessors, I think we have tical that professional investment management can con- been able to preserve the literary quality and the intelli- https://jpm.pm-research.com sistently provide benefits that justify the cost.” Samuelson gibility I sought at the outset. and Black came on strong in support of portfolio theory, That was the easy part. The content finally got market efficiency, the random walk, the difficulty of ahead of me in novelty and complexity. In 1984, I invited identifying superior managers, and the deadweight costs Frank Fabozzi to join me as managing editor. Frank had of trading. Peter Williamson of the Tuck School explained contributed three articles by that time, and I was well Downloaded from the concept of total return for endowment fund managers, aware of his intellectual talents. But I also believed he with some models for the critical decision of whether, would be committed and cooperative, and I put high when, and by how much to spend in excess of income. value on his broad contacts throughout the field, in both Wagner’s ten myths about beta represented the first of a academe and the Wall Street community. Frank exceeded long series of basic articles to explain in relatively sim- my highest expectations.