The Genius and the Wolf.

June 19, 2018

Occasionally, one's most epiphanic thoughts transpire at four in the morning. As the mind noodles through the day's detritus. As mine did last night. Having introduced Pulp Fiction to my son. I found myself considering Tarantino's character, Winston "The Wolf" Wolfe. Played perfectly by Harvey Keitel, Wolf is the classic fixer. Sui generis. Called upon to efficiently navigate any seemingly impossible scenario.
Musing over Keitel's role, I was reminded that cool resolve and efficiency are often more valuable that intellect. That nerves of eight-inch coiled steel cable - the kind that tethers 300-ton ships to the harbor - can be more beneficial than genius.

Because investment success required the ability to objectively analyze opportunity. To view risk and reward in a detached, impersonal manner. And then make pragmatic decisions. As opposed to theoretical hunches.
Bob Prechter was one of the most talented people ever to analyze the stock market. A Mensa member. Brilliant in every regard.
After attending Yale on full scholarship, he taught himself the field of technical analysis. Eventually landing a job with Merrill Lynch as a technical market specialist. He soon became intrigued with the work of Ralph Nelson Elliott (1871-1948). Elliott, a former accountant and obscure technician who in the twenties and thirties developed the wave principle as a means of analyzing the market, published his life's work in 1946 under the immodestly titled tome "Nature's Law - The Secret of the Universe."
Since then, the wave principle has fascinated a small but loyal coterie of philosophers, mathematicians, psychologists, and theologians. And of course, investors.
In 1977, Prechter left Merrill Lynch and moved to Gainesville, Georgia, where he began publishing a market newsletter, "The Elliott Wave Theorist." Followed in 1978 by his book, Elliott Wave Principle, in which he accurately predicted the 1980s bull market. Over time, the book and newsletter turned Prechter into the 1980's foremost market guru.
When the crash of 1987 turned markets inside out, Prechter had a huge following. He earned $20,000 a speech -- big money at the time. But he eventually tired of being the "Market's Guru." He viewed the '87 crash as the end of the bull run, and changed his outlook to one of abject negativity. Even when the market recovered and ascended to higher highs, nothing could make Prechter change his mind. As he firmly believed that the stock market was at the crest of the tidal wave. Leaving investors to soon be dashed upon the rocks.
In 1989, Prechter became president of the Market Technicians Association. The trade association for the nation's technical analysts. By then, Prechter had been predicting gloom and doom for so long that he was slowly losing his audience. Yet, he remained convinced that stocks sat at the crest of the tidal wave. Leaving those without lifeboats to surely drown. And so he remained in Gainesville. Awaiting the inevitable flood.
He soon penned another book optimistically titled, At the Crest of the Tidal Wave. Even though the Dow was up more than two thousand points since 1989 when he'd first turned negative. The book painted Prechter's apocalyptic outlook for the market. Yet it was fascinating. As Prechter remained a genius. And a persuasive writer. At the Crest of the Tidal Wave scared the hell out of many investors. Even as the market continued to trend higher.
Ironically, as the Guru of the Eighties repeatedly forecast equity market disaster, the market rose a whopping 309 percent from 1989 to 1998. That year, it suffered a shallow bear market. Falling 22 percent. Before resuming its upward climb. Gaining another 65 percent until hitting its apex in August of 2000. And eventually leaving the reputation of our brilliant protagonist in shambles.
Prechter, for all of his genius, forgot one classic market maxim. That being, the market can be irrational for much longer than one can afford. Like a pendulum that defies the laws of physics by swinging through and beyond its confinement. Because of his intelligence, he believed he was right. And that Mr. Market was wrong. About which Mr. Market does not care. Willing to play the fool to the point where you are ruined. Even if you may be eventually proven right.
Whereas Robert Prechter allowed pride and obsession to get the best of him, Winton Wolfe would never have committed so egregious an error. As he would have shirked the ego's thirst for limelight. And ensured that he was coolly focused on the situation. Instead of where he felt the situation might lead.
Of course, that's the difference between ego-driven investors and the likes of Winston Wolfe. The ego plots its course, burns all bridges and goes. Whereas the likes of Winston Wolfe remain detached. Analyzing the situation. And contending with everything within their control. Whether that be an untimely or ill-conceived investment. Or a blood-soaked 1974 Green Chevy Nova.

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