Lessons from the Archives

Lessons From the Archives
by John Frost

I am reflecting on a person from my past who has opened the door to a great profession. He stands out as one of the greatest thinkers and observers of Stock Market Conditions over the past fifty years. He is Robert J. Farrell. Many will remember his many appearances with Louis Rukeyser on the weekly broadcast of “Wall Street Week”. He is a noted author, consultant and pioneer in his chosen profession. He popularized Technical Analysis. He was the first to focus on investor psychology and contrary thinking. He was the first to introduce “sentiment” when analyzing a market or a particular stock.

That was his serious side. Once, on an “in-house” broadcast on the week of his retirement, a broker asked him if he had any simple rules he follows or any observations which summarize his beliefs about the markets in general and stocks in particular. His observations follow:

Market Rules to Remember
By Robert J. Farrell, September, 1998
On the occasion of his retirement.

1. Markets tend to return to the mean over time.

2. Excesses in one direction will lead to an opposite excess in the other direction.

3. There are no new eras; excesses are never permanent.

4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.

5. The public buys the most at the top and the least at the bottom.

6. Fear and greed are stronger than long-term resolve.

7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names.

8. Bear markets have three stages: sharp down, reflexive rebound, a drawn-out fundamental downtrend.

9. When all experts and forecasts agree, something else is going to happen.

10. Bull markets are more fun than bear markets.

His words ring true today as one tries to decipher the machinations of The Market. His personal characteristics which endeared him to his followers include his calm, deliberative and distinctive voice, his perfect diction and command of the English language, and his ability to laugh at times and finally to write poetry. Here is a good example:

Ode to the Market
By Robert J. Farrell,
“Market Analysis Comment”, 4/25/77

Once upon a time in the land of Wall,
The favorite growth stocks began to fall.

“They are getting cheaper,” someone cried.
Others bought more as they continued to slide.

But they kept on falling for four whole years,
And soon the buyers were up to their ears.

When some knave suggested that growth was dead,
The first reaction was, “Off with his head!”

On further reflection, the decision was made
To consult the advisors that all of them paid.

The answer they got from those that they polled
Was, “Whoever said growth was good as gold?”

There is a moral to this epic story–
Don’t trust the advisor who says don’t worry,

Because later on when the stocks are depressed,
You will be told all the reasons they are no longer the best.
–––––
And so, this is my farewell to Rotary Reflections. Over the years, I have penned over one hundred essays and written observations. I have not signed up for the Reflections Committee this year. I want to thank everyone for your comments about my past articles. It is the kind of gratification that only a writer can appreciate. Thank you all, fellow Rotarians.