While wandering around an antique store several years ago, I found the books Wall Street Stock Selector, and Truth Of The Stock Tape, by William Gann, published in 1923 and 1930 respectively. Although nearly forgotten today, William Gann achieved fame in the first decades of last century for purportedly earning millions of dollars through his skillful stock trading and his application of technical analysis (and astrology) to predict stock market behavior.
Although he didn’t label it as such, Gann may have also been one of the first people to recognize what is now called “behavioral finance”. He wrote, “no matter how strong a man’s willpower may be, he is influenced, consciously or unconsciously, by what he hears or sees, and his actions or executions are interfered with accordingly”.1
Gann’s books make the claim that anyone could replicate his success by simply following his rules and learning the ways of the market. While most of the advice in his books is totally contrary to Highland’s investment philosophy, some of the advice he offered is timeless. For example, “Speculators and investors who simply guess, follow tips, rumors, newspaper talk and so-called “inside information” have no chance of ever making a success”.2
To update this statement for contemporary times just add: 24 hour talking heads on TV/cable, blogs, emails, and tweets to Gann’s list of things to ignore. Even as I write this line, my email is alerting me to more incoming spam, vying for my attention.
None of us can avoid the explosion of media and communication sources over the last three decades–-it almost dwarfs the Big Bang. In this short time span, we have witnessed the creation or expansion of the internet, cable TV, satellite TV, cell phones, smart phones, iPads, WiFi, VoIP, blogs, social media, and more. As if we needed proof of the ubiquity of communication saturation, Chevrolet is now airing a truck commercial that shows a group of friends on vacation driving in some remote stretch of America. When their cell phone finally loses its signal, they know they’ve found the perfect spot to set up camp and get away from it all.
Without question, the deluge of information we receive through these myriad channels affects us and our perception of the world. Unfortunately, research in behavioral finance reveals that practically no one is capable of effectively filtering this flow of information objectively. The inability to sort through the noise and remove our human emotions from the equation leads to incorrect interpretations of current events and data, which then leads to poor decision making.
Over the years, Adam and I have witnessed clients face emotionally challenging times caused by market volatility, just as is happening now. In a few instances, despite our efforts, clients succumbed to their primal fears and made decisions to dramatically shift their asset allocation because they believed the markets had further to fall. Without fail, these few clients all sold out either at the market bottom or within one or two days preceding it.
This is why, despite Adam’s and my own inborn desire to respond to the news of the day, we both strictly adhere to a passive, methodical approach to managing your assets. We have no crystal ball that foretells the future––no one does. We place our faith in the tenets of diversification, risk management, and cost containment. We encourage our clients to do the same. We’ll let everyone else follow William Gann’s astrology-guided advice.
- Gann, William D., Truth of the Stock Tape, New York: Financial Guardian Publishing, 1923.