Hi Guys,
Sorry, but I need to lower my blood pressure, and I’ve decided to use this fine MFO membership to vent a little steam.
This afternoon, a tennis buddy visited after discovering a “new” technical approach to investing success. He wanted to share his discovery with me while simultaneously securing some confirmation support. He anticipated that pattern seeking technical folks would be sympathetic to marketplace charting analyses. His judgment on that matter was as ill=conceived as his enthusiasm for his newly discovered charting scheme.
My tennis buddy, Ralph, had just been exposed (perhaps contaminated would better express my true reaction) to the Elliott Wave Theory as practiced and advocated by Robert Prechter. As you likely surmised by now, I am not a huge fan of that alchemy.
Regardless, to more completely respond to his many questions I recovered a book authored by Prechter that I own. The book is titled “At the Crest of the Tidal Wave”. It is the only book that I purchased from the Prechter catalogue; it was published in 1995.
I loaned the book to Ralph and wished him well. I hope he doesn’t drill me at net this coming weekend on the tennis courts. He was not a happy camper when he went home an hour ago. I did not give succor.
During our sometimes heated exchange I did have an opportunity to review a few passages in the book that refreshed my memory as to why I was not impressed with the text or the methodology.
The Elliott concept depends of a repetitious pattern of five upward oriented positive impulses followed by three downward oriented corrective swings. Patterns are embedded in higher order patterns. Ten orders of patterns of increasing size were identified ranging from Subminuette to Primary to Grand Supercycle to Millennium. The magnitude of the swings are somehow related to Fibonacci numbers and the Fibonacci natural ratio of 0.618. The assertion is that these cycles are pervasive throughout society and reflect massive herding instincts. Wow, a universal law exists that explains almost everything. Good luck on that claim.
Prechter is more circumspect than Elliott. He acknowledges that multiple interpretations of the Waves are likely; reading the wave signals are difficult and not unique. So a probability should be attached to each forecast that is correlated to the number of indicators that are triggered in the complex analysis. Errors happen.
In the 1995 book, Prechter did not project a Dow stock market in excess of the 10,000 level. He projected much poorer performance. He predicted a bear market with Dow levels below 1000, even perhaps down to a 400 price scoring. Since a time scale was not specifically given, perhaps his projections will eventually be realized. Good luck in this case also.
From Prechter’s Elliott wave assessments, he proclaimed the near ending of a long term Grand Supercycle (an enormous Kondratieff-like formation) wave that originated in 1784. So, according to Prechter. this wave analyses mysticism has the predictive power to anticipate the impacts of the industrial revolution, massive immigration wavelets, the automobile revolution, multiple wars, and the communication network miracle. If you believe that, I have a bridge for sale that might interest you.
While Ralph was looking over my shoulder, I went to the CXO Advisory Group website to make a quick check on Prechter’s forecasting success ratio in the Guru section of that useful site. He currently has a 22 % success ratio. I can do better than that by throwing darts at a stock market listing. To be fair, his sample size is small, and his forecasts have a long time horizon. Success/failure judgments are difficult.
As an aside, I did like Prechter’s observations and explanations with respect to mob behavior. In many ways he reflected the thinking of modern behavioral researchers.
Please comment, especially if you take issue with my assessment. There is always room for fair and disciplined debate. Ralph departed kind of in a mad mood. I did try to be gentle, but I failed.
Note that I relegated my Elliott Wave posting to the Off-Topic grouping. Is that too harsh?
Well, I think my blood pressure has returned to normal. Thank you for your patience.
Best Regards.
Comments
I do like your "thrice" though, I must admit... don't see that a lot these days.
With respect to Rukeyser, I don't recall him being too fond of the elves in general, speaking of the Elliott Wave ("It happened once, so it must be a") Theory. He sure did like "Sir John" Templeton, though.
I was a bit disappointed when your description didn't include sublevels of wavelets and overlays of deterministic chaos.
Hi Maurice,
Thanks so much for the Louis Rukeyser stories. I enjoyed every story and every word of every story. Your storytelling skills are superb.
I too am a Rukeyser fan and wish I could access more of his material.
He did a marvelous job on tape when presenting a fine summary of Henry Hazlitt’s book “Economics in One Lesson”. I own a copy of that audio presentation and have worn it out from overuse. It now suffers from stress fatigue while sort of creaking along sporadically.
I contacted the firm that produced the tape and encouraged them to sell a CD version of it. They claimed they were considering that option, but, alas, no progress has been made along those lines.
In spite of the roadblocks, the Louis Rukeyser legend is alive and well.
I was so much entertained by your storytelling and writing style that I really encourage you to do more of the same. The MFO forum would greatly benefit from more postings like this one.
Best Wishes.
A client called yesterday to tell me he had just listened to an audio recording by Michael Lombardi, predicting a near end-of-world catyclism over debt, hyper-inflation, devalued dollar, etc. This client asked for my reaction. Frankly I had never heard of this guy, but apparently he is somewhat recognized on the speaking tour and sells a lot of newsletters. My initial response to my client was that if Lombardi was such a great predictor of events, he would not be hawking newsletters (wherein you will find his magic secrets). But for almost every one of his specific problem areas, we had already put some kind of allocation in the client's portfolio to address the area. The one we had not addressed, hyper-inflation, appears right now to be a long way off. But the point is that there are a lot of these people out there, and there are plenty of scared individual investors (who listen to the political commentators on both extremes of the spectrum). And these folks are easy targets for the doom and gloomers. I don't worry about the hyper-bulls, since I rarely find one of them.
Whether it's Prechter, Shilling, Lombardi, or whomever, they have been around for a long time, and these folks know how to do one thing pretty well. If they are wildly contrarian and make scary predictions, they will sell a lot of whatever it is they sell.
Elliot wave, IMHO - are not right all the time. I think they keep prediciting gloom and doom days. I remember they were writing market would crash in late Sept 2009, but in fact the market was starting to turn around during those times.
personally I think most experts including BUFFETT would be wrong at the time
I don't think a bad crash is coming, most MF managers are not hoarding cash yet
Dont get mad, get even !! don't even buy their funds or follow their advise. If I was near retirement or in retirement, probably still have about 10s-30s% in stocks and rest in fixed income and let 'em ride. Besides most ETFs/Funds are 80% wrong long term anyways.
http://www.smartmoney.com/invest/funds/fund-managers-move-to-cash-1341929746340/
happy friday