Richard Russell is one of the few people who has been correct throughout this bear market. He got very defensive in late 2007 before the real carnage hit and avoided nearly the entire downleg over the prior 18 months. Dow Theory is nowhere close to perfect and has a somewhat cloudy track record, but there is a great lesson in Russell’s approach: he has strict rules and he always follows them. I too prefer a methodical, systematic and borderline robotic approach to investing. Having goals, targets and rules helps to remove the emotion from investing. After all, there is a reason why many of the best investors in the world rely on computers rather than their own intuition. You are your own worst enemy in the stock market and if you can create a strategy that takes your psyche out of the game you’ll perform much better over the long-term. Russell is one of the best at doing this. He had some fantastic comments yesterday that I thought I’d share:
Russell Conclusion — This is the time to have a totally open mind. We are seeing phenomena in the economy that nobody has ever seen before. The US government has declared all-out war against the prevailing primary bear trend. I’ll remind subscribers that “the market can do anything” but man’s emotions and market action tend to be pretty much the same over the years.
Personally, I continue to believe in the Dow Theory thesis that the primary trend cannot be manipulated or reversed by any group of men or any government. Once the primary trend of the market is established, it tends to run to conclusion or exhaustion. This is the reason why I believe the well-intentioned activities of the Fed and the Treasury will fail or at best, extend the duration of the bear market.
Nevertheless, I tell myself, “Russell, “no matter what — you must keep an open mind.” We’re living in a new globalized world. Two billion people have been added to the world economy. The old guard is weakening — the international power of the US is ebbing. That alone changes the game.
Russell is not concerned with picking the bottom. He has the ultimate respect for the market and the underlying trend. We can all learn a thing or two from him.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.