Today, you truly have the world at your fingertips. It’s easier than ever for you to get exposure to global markets, especially given the explosion in ETFs. But how do you decide which market is most worthy of your attention? On top of that, between blogs and social media there are more opinions today than ever on where those markets are headed. But who should you listen to? How do you know if your source is qualified and objective?
With that in mind, I sat down with EWI's Mark Galasiewski, a monthly contributor to the "Asian-Pacific Stocks Section" of our Global Market Perspective -- a comprehensive, 50-page monthly publication for global investors.
Vadim Pokhlebkin: Mark, would you agree that today, there are too many options and market opinions for investors to choose from? Especially for investors with a global focus. You perform monthly Elliott wave analysis of the stock markets in India, China, Australia and other regional indexes. How does Elliott wave analysis help you get a handle on things?
Mark Galasiewski: You make a very good point about investor information overload. To answer your question, there are various ways to make long-term investment decisions. For example, Warren Buffett has shown that picking individual stocks can provide good returns over time. But it's a very labor-intensive and time-consuming process, to research companies thoroughly enough to have the kind of conviction that he does. And his “buy and hold” strategy means that he suffers significant drawdowns in his portfolio at times -- like during the 2007-2009 crash.
Elliott wave analysis gives you the opportunity to make long-term bets with a similar conviction -- but with a fraction of the elbow grease. Instead of pouring over hundreds of quarterly reports and legal documents, you look for Elliott wave patterns in the charts of market indexes. Those patterns reflect investors' collective bias, bullish or bearish. (I won't go into details of why this is so; our Club EWI has tons of free reports explaining the mechanics of the Elliott Wave Principle.)
So, knowing what part of the Elliott wave pattern your market is in, you know how the pattern should progress from there, ideally. And that gives you a probabilistic forecast for the trend. It doesn't work 100% of the time (what does), but our subscribers remember more than one successful forecast we've made using Elliott waves.
For example, on March 23, 2009 -- at the time when almost no one felt bullish -- we issued a special report to our subscribers forecasting a multi-year bull market in Indian stocks. Two weeks later, we identified three more markets in the region -- Pakistan, Sri Lanka, and Indonesia -- that we believed were also likely to enjoy an "Indian Ocean Renaissance." (Chart shown with some Elliott wave labels erased.)
India, Pakistan, Sri Lanka, Indonesia have all since generated some of the best returns among global stock markets. Without knowledge of the Elliott Wave Principle, it would have been difficult to forecast the boom -- especially given the dismal news events at the time. Do you remember the headlines in early 2009?
The world was engulfed by the global financial crisis, and most people believed the worst was still ahead. The currencies of India, Pakistan, Sri Lanka, and Indonesia had collapsed. Pakistan and India were on the brink of conflict over the Mumbai terrorist attacks of late 2008. A civil war was still raging in Sri Lanka. Who would turn bullish on stock under those "fundamental" conditions? We did, and only because Elliott wave patterns in the price charts of those four markets told us to "buy."
And by the way, the terrible conditions in India, Pakistan and Sri Lanka mostly reversed along with the market rally over the next year.
VP: You've just partially answered my next question. So many investors -- the majority, really -- invest simply by watching the news. You've just demonstrated how doing that in March 2009 would have made you miss out on a huge rally. So are you saying that watching news reports is useless?
MG: The Wave Principle is how the market works. Financial markets are non-rational and counter-intuitive. Investing according to conventional assumptions eventually leads to financial ruin, since the market too often does the opposite of what most people expect.
Even thinking contrarily is insufficient, because sometimes it’s necessary to run with the herd. But Elliott wave analysis helps you to determine which psychological stance is most appropriate at any given time. Often, the news at the time would be suggesting you do the opposite. (Come back next week for Part II of this interview.)
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