I take pride in being a non-conformist. I think and act independently, read banned books, wear my hair short, and travel to places my grandparents would disapprove of. I question the status quo.
Naturally, I get a kick out of working with EWI's team of contrarian analysts. Their ability to articulate how irrational and unconscious investment behavior drives the markets provides a lot of ironic humor around the office, and creates an un-corporate "corporate culture."
Last week, Bob Prechter tweeted an off-the-cuff commentary about a news article on rational bubbles, joking about a "mythical race of investors who buy high and sell low."
He had just published an Elliott Wave Theorist explaining the herding phenomenon:
…Running with the herd is not an occasional event but constant; and it is not rational but self-destructive.
…Socionomics argues that bubbles and crashes are inconsistent with the rational risk assumption but entirely consistent with non-rational risk aversion. Whether buying or selling, investors are unconsciously perceiving less risk.
When buying, they are acting like a gazelle loping along after the herd in hopes that others know where the water hole is. When selling, they are acting like the gazelle that runs in panic because others are running. In neither case is there any thought of taking on risk, rationally or otherwise.
Investors often pay lip service to the idea of taking on risk. But they don’t mean it. All such thinking is merely rationalization. The neocortex has to do something at times when impulses are directing its host’s behavior, and in such contexts it resorts to rationalizing mood-induced imperatives.
In financial markets, rationalization is constant. It is the basis for the vast bulk of commentary justifying buying or selling financial assets. Reason doesn’t figure much into the picture at all.
(Elliott Wave Theorist, April 2011)
Of course, not everyone at the office shares my personal taste for experimental music, ethnic food or avant-garde fashion. If you met Bob Prechter or our other analysts, you probably wouldn't peg them for wild-eyed contrarians, either.
But when it comes to financial markets, our analysts don't hesitate when the time arrives to challenge the prevailing economic wisdom, and part with the herd.
They study and then explain the psychological and technical patterns that can help you avoid the mistakes which are so common to investors.