Robert Prechter is the "Georgia Bear", and he does write the Elliott Wave Theorist. He became famous because before the 1987 crash, for several years, it was uncanny how accurately he could call short term swings in the market. I remember people calling in sick at work to stay home to see what he said when it was known he would be a guest on FNN (the California forerunner of CNBC). Within seconds of his pronouncements on TV, the market would do exactly what he said it would. I myself subscribed to his expensive newsletter. By the way, he was primarily a bull at that time, in the face of much bearishness from other analysts. Also, he dealt primarily in forecasts for "the market" and not individual stocks. Many of his followers "invested" in S&P500 futures and options, betting on short term moves over a few days or weeks. People who followed Prechter made tons of money until 1987 and worshiped him and his Elliott Wave system.
Then, like so many before him, something happened and his system stopped working. Just before the 1987 crash, he was forecasting that the market would run higher for several months more, to be followed by a huge correction. Friends of mine liked to short S&P500 put options and let them expire collecting the premiums over and over again each month as the market rose. I know people who were short hundreds of contracts of OEX and SPX puts just before the crash. These people had their entire liquid net worths tied up in margin requirements alone for the short options positions. One ended up declaring bankruptcy because he could not cover his shorts in time and was heavily margined and lost many times his net worth. One lost his house and still lives in a rental in the Bay Area (after years of swearing off trading, he is now avidly day trading stocks and says "this time it will be different"). Of course, the crash occurred much sooner than Prechter predicted and very quickly, within a couple of days, the market hit a near term low.
Of course, no one knew in Oct 1987 where things would be in Nov 1987, and so all the gurus started taking sides. That is when Prechter made his critical mistake of turning from bullish to extremely bearish, forecasting the Dow would drop well under 1000 in the bear market of our lifetimes. His followers dutifully sold everything and started shorting. I followed as well, because, well, his advice had always been so perfect for so long. I lost my shirt.
Of course the market rose steadily from that 1987 crash and all of Prechter's followers lost money. Over time, the faithful have dwindled in number and many converted to following other gurus and became bulls. I think few subscribers to BP's newsletter are left. And I think even BP has been softening in his bearishness lately.
The point is that anyone who tries to call short term moves in the market may get a system that works, for a while. But eventually all these systems fail as the 'style' of short term movements in the market changes over time. Systems that work perfectly one year may fail dismally two years later. And over time, the taxes and trading costs take their toll and most short term traders end up losers.
Just my opinion.
BTW, the "Kansas City Bear" is Joe Granville, a crusty old codger who was famous for years before Prechter in his ability to call the market. The world loved and followed him and everyone made tons of money. He has a similar story to BP's which I won't relate here, but just so you know in the end his followers lost their shirts, and Joe himself declared bankruptcy. He owes the IRS tons of money on gains he no longer has, and I read a story in Barrons about him which detailed how he lives in a rented apartment in Kansas City now, does not own a car of his own (the IRS would seize it if he did), and still publishes his newsletter from one of the bedrooms of his apartment. Because of past fame, he gets on TV still and I saw him recently. His latest prognostication: 'All of my subscribers and I have already booked a cruise ship to sail the Carribbean for New Years Eve 1997/1998 (12/31/97). We will be celebrating the Dow being >10,000. Fall 1997 will be one of the greatest blast offs we've ever seen."
I worry when I hear this. Especially since I know he's been a bear for over 20 years and just turned bullish within the past year or two. You see, you have to say what the people want to hear to sell newsletters. And 10,000 by 1/1/98 is just what everyone wants to hear right now. |
