“Because the mania [the bull markets of 1982 to 1999 and 2003 to 2007] was so terrific,” he told me this week, “it will be followed by a negative trend in social mood that will lead to a complete retracement. That would put the Dow back to its levels in 1982, below 1000.”
– Jason Zweig, quoting Robert Prechter in his The Intelligent Investor column

I first remember hearing about Robert Prechter in about 1983 or so. And I’ve found him to be very interesting ever since. And here’s what I can tell you about him. He’s very smart. He’s usually either really right or really wrong. And the main thing is he realizes that the way to attract a large following is to make really extreme long-term predictions.

If he had said he expects the Dow to drop 10 or 20 percent nobody would pay attention to him. But the Dow below 1000? Now that’s an attention getter.

Jason Zweig comments, “A 90% drop in the Dow (if the weighting of its 30 companies didn’t change) would leave only one of the components—IBM—trading above $10 a share. Alcoa, Bank of America, General Electric and Pfizer would be under $2 apiece, in danger of being delisted by the New York Stock Exchange.”

Also, “Before their valuations could hit such absurdly low levels, public companies would go private. If Coca-Cola ever traded at five times its earnings, Warren Buffett would buy the whole company faster than you could spell ‘Vanilla Coke Zero.’”

The first rule of investing is anything can happen. But as Zweig also points out, if the Dow ever got that low we’d have a lot more to worry about than the stock market. But the Dow below 1000 sure attracts attention. And with Prechter (as with other prognosticators) getting attention is the whole point.

ATR Trading

The portfolio is 86% invested.  And I have one more I want to add on Monday.

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