Most stock market analysts happening upon a song by the Sex Pistols in the late ’70s would have simply changed the station. Analyst Robert Prechter, a former rock drummer, heard the punk group and cried, “Buy!” Such dark anthems to angst, Prechter reasoned, must signal a low point in the general public mood, meaning that both an emotional and a market improvement lay ahead.
The screwiest thing is, he was right. And subscribers who heeded Prechter’s advice in his investment newsletter, The Elliott Wave Theorist, profited greatly when stock prices began to lift along with the public spirit a few months later. Since then Prechter has proved that his prescience was no fluke by consistently forecasting market trends, including most recently the precipitous 57-point plunge of March 30, 1987—as well as the quick recovery that followed. Currently, Prechter sees a continuing bull (good) market for the rest of 1987, and while he has had his misses, his advice is so widely heeded that some claim his prophecies become self-fulfilling. “Bob’s the hottest analyst on Wall Street,” says Mark Hulbert, whose respected annual evaluation of 100 investment newsletters ranked Prechter the top forecaster of 1986.
This standing is all the more impressive because, in attaining it, the 38-year-old phenomenon has converted many skeptics to believers in his highly idiosyncratic approach to finance. So what if Prechter, who studied psychology at Yale, finds his leading indicators among such arcana of pop culture as monster movies, Top 40 songs and hemline heights? (This season’s “shorter, pouffier skirts” are a “clear rising trend” for the market, he has declared.) Who cares if his method comes from an obscure, long-dead accountant named R.N. (for Ralph Nelson) Elliott of L.A., who declared that the market reflects the mass psychological mood and oscillates between optimism and pessimism in a detectable series of “waves”? Prechter has now caused flood tides on his own, and from a most unlikely locale. He dispenses his advice by mail and phone to 12,000 subscribers (who pay $233 per year) not from high above Wall Street but from two rooms in his lakefront home outside Gainesville, Ga. “To do what I do you just need a TV and a phone,” he claims, but compulsiveness helps too. Since 1974, Prechter has updated his charts hourly during market sessions with only a two-week break for a honeymoon in 1976. “If you don’t put your all into this kind of work, you’ll be a complete failure,” he says, “because every minute of the day the market is trying to outfox you.”
It was his meticulous bent, as well as his pop background, that made him a wave disciple. “Someone feeling daring enough to run out and buy a few shares of a low-priced stock,” Prechter says, “is probably also dressing with more flair and buying upbeat pop tunes.” He stumbled across the thesis as a young analyst with Merrill Lynch in Manhattan, began making charts and was dazzled by “this amazing phenomenon.” He started issuing bulletins, attracted a small audience and in 1979 decided to do a newsletter full-time. By 1981 Prechter convinced his wife, Robin, then an assistant buyer at Lord & Taylor, that it was time to jump the New York treadmill for the slower rhythms of the South. The son of an electrical engineer in Atlanta, he thought the shores of Lake Sidney Lanier, one hour away from his hometown, looked like “a great place to raise a couple of children.” He finds it great for market watching too. “Seeing a trend in New York, where people are screaming at you every second about the latest news, is like trying to think clearly in a hurricane,” he says—and besides, he can occasionally grab a swim between wave updates.
Prechter sees a wave pattern in his own life: Four years with a rock band, four at Merrill Lynch and four getting the newsletter off the ground. Sometimes he thinks a new wave may be in the offing. “I don’t want to do this all my life,” he says, and his Ludwig drums, stashed just outside his office, provoke pangs of nostalgia for his performing days, when a song he co-wrote, Some Guys Have All the Luck, became a hit by Rod Stewart. But the Ludwigs will have to wait a while. In 1984 Prechter entered the United States Trading Championship, a four-month competition in which entrants parlay a given portfolio as high as they can. One month later a doctor ordered Robin, six months pregnant with their second child, to bed. Already going flat out with the newsletter, Prechter found himself making 180 paper trades a day and “taking a 2-year-old to the bathroom.” His portfolio, once up 300 percent, flagged until his son was delivered on April 29, with one trading month to go. “He was early, and I thanked him for it,” says Prechter. He won the competition with a 444 percent gain. They named the baby Elliott.
The years have only deepened Prechter’s respect for his guru, whose work, he says, “will ultimately be seen as one of the biggest breakthroughs in sociology.” Still, some brokers, having witnessed other hot streaks, expect Prechter’s luck to run out. Says the bemused star, “One guy wrote to Barron’s and said, ‘Prechter seems to be saying that instead of reading the Wall Street Journal you should read Women’s Wear Daily.’ My answer is, ‘Exactly.’ ” Unless, of course, the Wall Streeter might be more comfortable listening to Talking Heads.