Robert Prechter démonté par Advisory Group

Advisory Group s’est amusé à analyser la performance des déclarations du gourou financier Robert Prechter, traditionnellement baissier. Il a eu son heure de gloire pendant la baisse 2000-2003. Mais depuis, il est plutôt à contre-sens et donc jeté en pâture aux critiques les plus acerbes. On voit qu’il est très difficile de rester enfermé dans une seule logique. L’avenir lui donnera sans doute encore raison (après la montée, il y a forcément une descente!!!) mais de là à faire des prévisions cataclysmiques sur les marchés financiers…


Robert Prechter: 100-Year Bear? (Last Updated 8/14/07)

We evaluate here the stock market forecasts of Robert Prechter, mostly since April 2002. Evaluated predictions come indirectly via MarketWatch columns, which have tracked his commentary only occasionally in recent years. Robert Prechter is president of Elliott Wave International and has since 1979 been publishing the Elliott Wave Theorist. He is the author of multiple books related to the Elliott wave principle. The table below presents highlights from his commentary and shows the performance of the S&P 500 index over the 21, 63, 126 and 254 trading days after the publication date for each item. Red plus (minus) signs to the right of specific items indicate those that the market has subsequently proven right (wrong). We conclude that:

  • As indicated by the name of his company and his newsletter, Robert Prechter relies essentially on Elliott wave analysis to forecast stock market behavior.

  • He has been very negative on stocks for the entire sample period, generally taking a very long-term view.

  • Based on our judgment, Robert Prechter’s accuracy rate is about 29%, which is very poor. However, especially because of his very long forecasting horizon, the sample is much too small for reliable inference.

  • In fact, Mr. Prechter’s reported forecasting horizon is so long that testing multiple independent forecasts within his or any evaluator’s lifetime is problematic.

Here are additional notes to augment the tabular summary:

From Peter Brimelow in MarketWatch (4/26/02): « Exactly how much Elliot Wave forecast fans lost depends on whether they actually went short the market when Prechter turned bearish. In that case, they are in a deep hole: down 99.2 percent over the last 15 years. In contrast, the stock market yielded a 398.6 percent dividend-reinvested gain. But if Prechter’s followers merely went into cash in the wake of Prechter’s bearishness, they would have gained 135.2 percent over those same 15 years. »

From Peter Brimelow in MarketWatch (6/30/03): « Prechter has been out of the stock market since before — note carefully, before — the 1987 Crash. Naturally, this has hurt but has also served him well in the bear market of the past three years. Indeed, because of that high cash component, Prechter has recently been ahead of the Wilshire 5000 on a risk-adjusted basis over the 23 years that the HFD has been following him. »

From Peter Brimelow in MarketWatch (1/12/04): « …by Hulbert Financial Digest count, the stock market timing of Elliot Wave Financial Forecast (which HFD treats as the successor to Elliott Wave Theorist after the latter stopped giving portfolio advice) has outperformed the Wilshire 5000 on a risk-adjusted basis over the entire period since July 1980. Over the past five years, it gained 3.5 percent on average annually, vs. 1.8 percent for the Wilshire 5000. This, however, was the Prechter people’s investors portfolio, which switches between the stock market and cash. The traders portfolio actually goes short, with the result that it has an annualized loss of close to 20 percent since 1985, when buying and holding produced an annualized gain of more than 12 percent. »

From Peter Brimelow in MarketWatch (10/20/05): « …the EWFF’s [Elliot Wave Financial Forecast] trader’s portfolio has endured a staggering annualized loss of 18.1% over the 20 years through September. (EWFF split off in 1999 from Prechter’s Elliott Wave Theorist, which no longer offers specific portfolio advice. But the two seem to work in tandem.) EWFF’s advice for investors, however, currently matches the dividend-reinvested Dow Jones Wilshire 5000 on a risk-adjusted basis and has quite often exceeded it. »

In their October 2003 paper entitled « Idealized Elliott Waves and Random Walk Tests », Robert Prechter and Deepak Goel find that stock market movements are more like idealized Elliott waves than random fluctuations. However, the paper does not address whether these test results support any systematic stock market timing approach.

In summary, Robert Prechter has not been successful in applying the Elliott wave principle to time the U.S. stock market in recent years.