Robert R. Prechter Jr.

Robert R. Prechter Jr. (born March 25, 1949) is an American financial author, and stock market analyst, known for his financial forecasts using the Elliott Wave Principle. Prechter is an author and co-author of 14 books, and editor of 2 books, and his book Conquer the Crash was a New York Times bestseller in 2002. He also has published monthly financial commentary in the newsletter The Elliott Wave Theorist since 1979, and is the founder of Elliott Wave International and New Classics Library. Prechter served on the board of the CMT Association for nine years, and as its president in 1990–91. He has been a member of Mensa and Intertel. In recent years Prechter has supported the study of socionomics, a theory about human social behavior.

Prechter attended Yale University and graduated with a B.A. degree in psychology in 1971. He became a drummer for his rock band throughout circa early 1970s. His career as an analyst began when he joined Merrill Lynch as a market technician in 1975, where he learned much about the trade from Merrill’s Chief Market Strategist, Robert Farrell (June 1982). There Prechter also learned of Ralph Nelson Elliott and the Elliott wave principle and was deeply intrigued:

So I tracked down R.N. Elliott’s original books. They weren’t even in the Library of Congress. But I finally dug around in the New York Public Library and found a catalog card listing a copy of them on microfilm and had photocopies made. I was amazed to find that there was a wealth of information that had been lost to Wall Street.

Prechter has also said, “after I decided to make markets a career, I realized that mass psychology is what they’re all about.”

In 1979 Prechter left Merrill Lynch and published the first subscription issue of the Elliott Wave Theorist. The 1970s had been very bullish years in the gold market but mostly bearish for stocks, yet his Elliott wave analysis called for a long-term reversal lower in gold (February 1980) and a long-term “super bull market underway” in stocks (October 1982). Because these forecasts proved mostly correct—especially for the stock indexes—Prechter’s following grew.

His visibility increased further after he won the U.S. Trading Championship in 1984, with a then-record 444% return in a monitored options trading account. He was profiled in many financial and business publications and named “Guru of the Decade” by the Financial News Network (now CNBC) for the 1980s.

Prechter has been forecasting a large-scale bear market, as explained in his book Conquer the Crash.

Much of Prechter’s career as a publisher includes his efforts to re-introduce R.N. Elliott’s wave principle to investors. He compiled and republished all of Elliott’s available writings, including the 1938 “Wave Principle,” and the “Interpretive” and “Forecast” letters (1938–1946). Prechter also published a brief biography of Elliott and the collected Elliott wave writings of the few technicians who practiced wave analysis in the 1950s and 1960s (Charles Collins, Hamilton Bolton, A.J. Frost, Richard Russell).

Still, not all the popular exposure to Elliott wave analysis was the result of Prechter’s deliberate efforts. In the few years before and after 1987, media coverage inflated Prechter’s “guru” status to extremes, including the assertion that his forecasts could single-handedly “cause” the stock market to rise or fall. In the months after Black Monday in October 1987, subscriptions to Prechter’s Elliott Wave Theorist surged to some 20,000. That number declined in the early 1990s (as did the subscription levels of most other financial publishers), though “Prechter has done more to popularize and spread Elliott’s philosophy than anyone else.”

Socionomics

Prechter has developed a theory of the causality of social action called socionomics. His “socionomic hypothesis” is that naturally occurring waves of social mood are the primary regulator of social action. They account for changes in the character of trends and events in finance, macroeconomics, politics, fashion, entertainment, demographics and other aspects of human social history. Under development since the 1970s, this idea first reached a national audience in a 1985 cover article in Barron’s. Prechter has made presentations about socionomic theory at the London School of Economics, MIT, Georgia Tech, SUNY, University of Cambridge, University of Oxford, Trinity College Dublin and various academic conferences.

Financial Theory

Prechter has developed a new theory of financial causality that proposes a fundamental separation between the fields of finance and economics. His Socionomic Theory of Finance (STF) opposes the Efficient Market Hypothesis (EMH)—which equates economic and financial markets—on ten major points. In brief, Prechter accepts that in the economic realm, because producers and consumers are knowledgeable of their own needs and desires, the pricing of utilitarian goods and services is mostly objective and motivated by conscious utility maximization; in this context, the balance of desires (supply and demand) between heterogeneous groups of producers and consumers leads to equilibrium-seeking in prices.

But his STF proposes that in the financial realm, because investors are ignorant of what other investors will do, the pricing of investments is mostly subjective and motivated by unconscious herding; in this context, unfettered changes in desire (demand) within a homogeneous group of investors produce unceasing dynamism in prices at all degrees of activity. In economics, substantial certainty about one’s own values induces mostly rational thought; in finance, substantial uncertainty about others’ values induces mostly non-rational herding and rationalization. Prechter’s proposed Law of Patterned Herding (LPH) is that investors’ moods and their resulting decisions to buy and sell are regulated by waves of optimism and pessimism that fluctuate according to a fractal model called the Wave Principle, or the Elliott wave model. Prices of goods and services are important because they regulate supply and demand. But prices of investments are irrelevant because they are merely a transient byproduct of mood-induced impulses to buy and sell.

The Wave Principle

Prechter is known for a long career in the development and application of the Wave Principle, an empirically derived model of financial pricing identified and described by Ralph Nelson Elliott in the 1930s. According to this model, financial market prices—especially aggregate stock market prices, which are particularly sensitive to changes in social mood—develop in a series of five “waves” in the direction of the immediately larger trend and in a series of three waves (or combination thereof) when moving contrary to the immediately larger trend, thereby producing a patterned, hierarchical fractal. This 5-3 fractal construction leads naturally and efficiently to fluctuation at all scales, to trending at each degree of the hierarchy and to a tendency of price movements to display Fibonacci relationships. These waves take certain described forms called Elliott waves. This model is compatible with socionomics and Prechter’s theory of finance. Prechter has written/edited a dozen books on the Wave Principle, including the original works of R.N. Elliott and his successors.

Market Analysis and Forecasting

Prechter began applying the Wave Principle to financial markets in 1972. Each month, he writes The Elliott Wave Theorist. His colleagues at Elliott Wave International produce Global Market Perspective, a 100-page analysis of all major markets around the world. His firm also provides monthly market publications covering the U.S., Europe and Asia; three times a week Short Term Updates for each region; intraday analysis of the S&P and other markets; and specialty services for investors in currencies, metals, commodities, bonds and energy markets.

Awards

Prechter won the U.S. Trading Championship in 1984 with a then-record 444% return in four months in a monitored, real-money options trading account. His publication, The Elliott Wave Theorist, won numerous speaking, timing and publishing awards during the 1980s, and in 1989, he was named “Guru of the Decade” by the Financial News Network (now CNBC). In 1999, Prechter received the Canadian Society of Technical Analysts’ inaugural A.J. Frost Memorial Award for Outstanding Contribution to the Development of Technical Analysis. In 2003, Traders Library granted him its Hall of Fame award. The Market Technicians Association presented Prechter its Annual Award in 2013.