In Memory of James H. Lorie (1922-2005)
University of Chicago professor who helped start stock research database.
Instructor and dean who also helped apply a new method to teaching business management.
By Tonya Maxwell, Chicago Tribune staff reporter
Published August 11, 2005
Much of the mystery shrouding the stock market dissolved when James H. Lorie began documenting the historic rise and fall of stock prices.
The idea was simple but laborious: chart stock prices from 1926 to1960 and beyond. Dr. Lorie, a University of Chicago professor, helped establish the Center for Research in Security Prices at the Graduate School of Business.
Dr. Lorie, who lived in Chicago's Lincoln Park neighborhood, died of pancreatic cancer Saturday, Aug. 6 in Northwestern Memorial Hospital in Chicago.
He was 83.
"He was responsible for building up the stock exchange database," said economist Milton Friedman, a fellow professor at U. of C. "It provided the information of various stock prices. It allowed researchers to analyze stocks in ways that couldn't be done before."
The data, never before compiled, gave researchers the ability to understand the long-range performance of the market and eventually gave rise to the field of index funds.
It was one of many accomplishments in Dr. Lorie's 45-year career at the University of Chicago.
He is credited with bringing top business scholars, many of them eventual Nobel Prize winners, to the university.
While associate dean of the business school from 1956 to 1961, Dr. Lorie helped apply a new method to business management education. Known as the Chicago Approach, it introduced students to other disciplines, such as sociology and anthropology, to make them more effective managers.
But Dr. Lorie would have been just as happy being a cowboy.
About 35 years ago, he and his wife, Vanna, built a house in Tesuque, N.M., just outside Santa Fe. The couple spent half the year there, and half in Chicago while Dr. Lorie taught.
Although the house recently was sold, few things gave Dr. Lorie more pleasure than riding for hours with his wife's uncle, Melvin Pfaelzer, like a couple of ranchers.
The two were full of bawdy jokes--Dr. Lorie had a knack for telling the goofiest ones--and good conversation, said his stepdaughter Erika Bartelstein, who often rode with the men as a teenager.
"This man was a great thinker. He brought in all those guys [to the U. of C.] who won all those Nobel Prizes," she said. "But he was just as happy sitting on his horse telling stupid jokes."
He was also quick to rib his family with his brand of gentle humiliation, said stepdaughter Victoria Lautman.
When students went into Dr. Lorie's office, pictures of the girls, then in their 20s, faced potential young suitors. "He always had our pictures facing out, and he would actively set us up with these young lions of finance," Lautman said. It never took, she joked, adding that Dr. Lorie and their mother, Vanna, wanted the kids to experience a love affair like their own. They were married 38 years until her death in 2004.
Victor Niederhoffer, who received a doctorate in 1969 from the U. of C. Graduate School of Business, studied under Dr. Lorie. He is just one of hundreds of students who owe their business development to the professor, said Niederhoffer, a futures speculator living in Connecticut.
They remained lifelong friends, bonding beyond their academics. Together, they won the 1966 squash doubles Western championship held in Chicago. Niederhoffer won 10 national titles, but Dr. Lorie ribbed that he was the better player, though his younger partner was the one diving on the court.
"He always used to say he was the better man and he was the coach, because I hit all the balls," he said.
Off the court, Dr. Lorie was a giant of business, building the foundations of modern finance through stock databases, Niederhoffer said. Without that knowledge, he added, other profound thinkers never would have been able to begin their work.
But always, Dr. Lorie was gracious, never considering himself a giant of anything.
"I went to chemo [therapy] with him about three weeks before his death," Niederhoffer said. "He said, `Thanks very much for coming, Victor.' I said, `It's the least I can do.' He said, `No, it's the most you can do.'"
"A very tearful moment was that," Niederhoffer said.
Other survivors include a stepson, Karl Lautman; another stepdaughter, Katharine Wexler; and four grandchildren.
A memorial service will be held at the University of Chicago, but a date has not been set.
I would add to the above the following:
Lorie was the consummate businessman, the perfect loyal friend, the ideal family man and a man of infinite hobbies and interests. Among his many accomplishments was building the Graduate School of Business starting from a budget of $500,000 and 10 professors; it is approximately 500 times as big today. This growth was even greater than the returns he documented, of some 300-fold, that would have been achieved by a buy-and-hold strategy for randomly selected stocks on the NYSE during a comparable period. His strategy in building the school with Dean Alan Wallis was to hire the best professors in each discipline who were waiting in the shadows in lower level positions in at other graduate schools. He would invite these potential recruits to Chicago, get a great hamburger at a Polish dive in a rundown section of town, leaving his keys in the car as they greased it. "I lost a few cars that way but I managed to dispel all the fears that those guys had heard about back home," he would say in one of his characteristic witticisms. Among those he hired in this way were the Nobel Prize winners George J. Stigler, Merton H. Miller, Myron Scholes and Robert Emerson Lucas Jr.
It is a fitting tribute to Jim that the Graduate School of Business will fly its flag at half mast for the 10th of September in memoriam.
He was a pillar and founder of the Chicago business community, which forms the backbone of Chicago's cultural and commercial life to this day. He and Bob Gwinn of Sunbeam; Irving Harris of Standard Shares (later Pittway); Ben Heineman of Chicago & North Western Railway; Edward Levy, dean of the Chicago law school; Peter Peterson of Bell & Howell; Jay Pritzker of Hyatt; Alan Muchin, founder of Katten Muchin Rosenman LLP; and Bill Jentes, the arts philanthropist met regularly along with others on a social and business basis and were responsible for countless projects that have made Chicago and its environs the vibrant community it is today.
Jim served on the boards of many companies during their most dynamic stages including Merrill Lynch, NASDAQ, Standard Shares and The University of Chicago Press. His integrity and wisdom was such that whenever an outside view of a crisis was necessary, he was the point man and arbiter par excellence.
He was an expert on Winston Churchill, Mark Twain and Conservative political philosophers. His extensive collection of books of these statesmen has augmented the University of Chicago's collections, and his frequent lectures on these subjects has introduced their greatness to many an aspiring student. His lecture on Churchill upon his death in 1965, which was attended by some 1,000 students at the U. of C's biggest lecture hall, and his talk before the American Statistical Association on the pioneering statistical insights of Mark Twain were two major exemplars. Another one of his hobbies was backgammon, which he played for fun and pleasure, and used to pay his way through school.
One of Jim's favorite activities during the last twenty five years of his life was to lunch at the University of Chicago's faculty club surrounded by his friends, Ronald Coase, Milton Friedman, George Schults, George or Steve Stigler and Arnold Zellner, Peter Dembowski, Ted Cohen, Richard Stern, Charles Grey, Robert Ashenhurst and Bernard Meltzer . After some lively conversation about the day and fray, and how all problems would be solved if only government were to go away and competition were extended, Jim liked to shoot an hour or two of pool to sharpen the wit, pocketbook and eye.
Jim's academic career may be compared to that of Linnaeus or Mendeleyev. He established the database, fomented the research center and performed the first studies from which all subsequent work in biology, chemistry and, in his case, finance flourished. He wrote three books about his work, one on agricultural cycles, another on marketing and a third on stock market behavior. [Lorie: Causes of Annual Fluctuations in the Production of Livestock, 1947. Lorie and Roberts: Basic Methods of Marketing Research, 1951. Lorie, Dodd and Kimpton: The Stock Market - Theories and Evidence, 2d ed. 1984. He also wrote a pamphlet, "Public Policy for American Capital Markets," 1974, which advocated centralizing stock trading electronically by means of a Consolidated Limit Order Book or CLOB]. Each of his books was widely used. And whenever a dean or professor at the U of C called for more elegance, or more simplicity, or more beauty in writing, Jim's books and articles were the model.
Jim's rules for writing were to create short, simple declaratory sentences with each getting over a point that led to the next sentence. I once spent a year researching an article on insider trading with him that ultimately appeared in the Journal of Law and Economics. I still remember that Lorie wrote and completed that paper in one and a half hours in his office dictating one short and simple thought after another. That was his way.
Along these lines, he carried the same elegance in his ability to tell stand-up jokes of an academic nature a la his beloved Johnny Carson. All who knew him always marveled at how, as soon as he came into a room, no matter how exalted the attendees, a crowd formed around him and he told one pointed joke after another to elevate the spirits and provide a benevolent and pro-U. of C., pro-conservative ambience.
Always Jim loved his wife and family. They were never apart in the 40 years since they met, they never argued, they always reached out to new friends in the communities they lived in with dinner parties, introductions and recommended books. Jim derived the greatest pleasure during his last years from spending his time with his children and his four grandchildren.
Characteristically, he put some money aside for each of them when they were at an early age and saw that it was invested 100% in stocks throughout the period. He practiced what he preached, buying stocks on margin with whatever money he had and letting it ride, placing it in index funds or investing on tips he received from friends.
He is certainly the key force behind the multitrillion-dollar index fund business. His studies and consultancies fomented the first such funds at Wells Fargo in the 1960s, Vanguard in the 1970s and the Ford Foundation. His directorships and wisdom and databases at the stock exchange-related firms where he served provided the backbone, the emphasis and rudder that enabled these firms to play their proper role in the buy-and-hold, get-extra-return-for-risk field.
Two index funds were founded in 1973: the Wells Fargo Index Fund sparked by John McQuown and the Dimensional Funds sparked and headed by Rex Sinquefield, who now manages $40 billion in index funds. McQuown was a steady fixture at the University of Chicago where Jim and his students, including myself in a very minor role, guided him in every aspect of setting things up. Rex describes Jim's contribution to the Dimensional Funds in this way.
It was Lorie who persuaded them (American National Bank), who persuaded them to bring in a couple of MBAs [including himself], let them run around the place, and apply their ideas ...[and he continued to] persuade some of the senior management that you ought to embark on this path.
Jim is most remembered as the founder of the Center for Research in Security Prices. Everything in finance was changed and fomented from that database. It wouldn't have happened if Jim weren't there to field a random call from Louis Engel of Merrill Lynch in 1959. Engel, who later became one of Jim's best friends, wanted to know how well investors performed in stocks relative to other investments. Only Jim would have had the temerity and vision to say that Merrill should finance a database to answer the question. It started with a $300,000 grant, and the rest is history.
Always he was reaching out to someone. If a student needed a loan, if a student needed an investment, if a student needed a scholarship, if a student was down on his fortunes and needed a break, Jim was there to provide it. Countless such students owed their start to his generosity, including myself and Gary Hoover, the founder of mass marketing of books and Hoovers, among others. The students came together in 2002 to commemorate and establish the James Lorie Professorship at the U. of C., while he was still living, a very unusual and appropriate memorial.
Above all Jim was kind and humorous, brilliant, scholarly and decent. He lived a long and happy life, always surrounded by friends and family, never having to dissemble, always augmenting his own knowledge and others'. All who knew him would be the first to say that he was their mentor, their second father, the key link in their subsequent path to success. He would just say something like, "I just prevented you from hurting yourself too bad."