bhc investment: Boon vs Robert Prechter, Part II

Boon: No, I don't because I don't like to take investing/trading as a competition. "What’s nice about investing is you don’t have to swing at pitches. You can watch pitches come in one inch above or one inch below your navel, and you don’t have to swing. No umpire is going to call you out." You get in trouble, Buffett says, when you listen to the crowd chanting "Swing, batter, swing!"

NS: I like your investment thesis on Gold [1] Boon, and I believe "paper assets" are going to have a hard time playing catch up with "real assets" in the current inflationary environment we are in [2, 3]. However, I do wonder how the deflationary scenario as described by Prechter [15] is going to play out, if it is going to eventually.

LT: It might eventually. The question is when is eventually, and is extremely difficult to time.

Boon: I came across the Dow Theory [16] before I knew anything about Technical Analysis, and it was probably one of the most influential theories that had made an immense impact on my trading/investing career. I always tell anybody who is new to trading/investing to read it up, if he/she hasn't. Then, I will tell them about Warren Buffett -- I believe if an trader/investor who knows nothing about Warren Buffett after being 20 or 50 years in the markets...

LT: He/she would probably have wasted his/her 20 or 50 years.

Boon: Exactly.

LT: :-)

Boon: When it comes to the Elliott Wave Principle (EWP), Prechter's work is really the industry standard. I have great respect for Prechter. His background in psychology often allows him to come up with views that correlate with social trends and human psychology that most "analysts" fail to identify. His theory on Socionomics is incredible [6].

NS: Yes, that convinces me it is not always news that make the price; is often the other way 'round -- it is the price that creates the emotion and social mood.

LT: We all knew that George W Bush is not going to be re-elected, didn't we. Ha ha...

NS: I guess Gorden Brown is not gonna be able to hang on to his prime minister role for too long either. Well done Tony Blair who stepped down before the shit hit the fan!

Boon: Within the universe of Technical Analysis, we have seen the up's and down's of various methods as well as the up's and down's of various guru's. For example, the forty-one month cycle that the Rothschilds [17] employed to profit from the British bonds [4]. It was later discovered by Professor Kitchin, of Harvard in 1922. Even then, they remained relatively obscure and only gained public attention when they were discovered yet a third time, by Chapin Hoskins in 1935. After discovering them, he prepared studies about the cycles for the investment brokerage community. This rhythm, named the Kitchin cycle, continued to work flawlessly until 1945, then stopped working as mysteriously as it had started. The cycle had worked continuously, without interruption from 1868 until 1945. The Kitchin cycle (sink) lasted 78 years before it was thrown out. It operated independent of the other cycles as a stand-alone repeating pattern, and yielded great profits for its followers. In all of Technical Analysis, the EWP is totally unique. All other forms of Technical Analysis eventually fail, everything but the Elliott Wave.

LT: However, Ellioticians often need to revise and update the labels on their charts as the market unfolds. You always predict from the current known situation, much like a meteorologist. While Prechter has his admirers, he has been criticised by media and pundits [7]. For example, the Wall Street Journal ran a page one article in August 1993 with the headline, "Robert Prechter sees his 3600 on the Dow -- But 6 years late," in reference to Prechter's 1987 forecast for the Dow Jones Industrial Average. Technical analyst David Aronson wrote:

The Elliott Wave Principle, as popularly practiced, is not a legitimate theory, but a story, and a compelling one that is eloquently told by Robert Prechter. The account is especially persuasive because EWP has the seemingly remarkable ability to fit any segment of market history down to its most minute fluctuations. I contend this is made possible by the method's loosely defined rules and the ability to postulate a large number of nested waves of varying magnitude. This gives the Elliott analyst the same freedom and flexibility that allowed pre-Copernican astronomers to explain all observed planet movements even though their underlying theory of an Earth-centered universe was wrong.

Boon: Well, it could be difficult to use in practice due to its dynamic nature, so are many other methods. You really need to know it very well in order to make good use of it, which is true for all methods. Personally, I prefer to look for the invariants and plan my strategies around them. Without knowing what are the invariants, you will be in a constant guessing game. I don't like second guessing the markets too much. I like a sure thing. "I like to go for cinches. I like to shoot fish in a barrel. But I like to do it after the water has run out." -- Warren Buffett, Oct 2003. However, Paul Tudor Jones [5, 13, 14] has successfully employed the EWP to amass a great deal of his fortune. Jones' Tudor Investment Corporation also uses the DeMark Indicators [8, 9, 10, 11, 12].