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Sunday, November 29, 2015

Mark Hulbert - A tribute to Richard Russell, who edited Dow Theory Letters for 57 years

The late investment-newsletter editor correctly called major trend changes in the stock market since the 1950s

Richard Russell, editor of Dow Theory Letters, died Nov. 21.
CHAPEL HILL, N.C. (MarketWatch) — Richard Russell, who was editor of the investment newsletter Dow Theory Letters for 57 years, died Nov. 21.

Russell died under hospice care at home after being diagnosed with untreatable ailments, according to a notice from his newsletter.

Russell started the newsletter in 1958, and was editor until his death. He holds the record for the longest-lived investment newsletter continuously edited by the same person.

Russell credited the late Robert Bleiberg for his first big break in the newsletter industry. Bleiberg was editor of Barron’s from 1955-1991. (Dow Jones is the publisher of both Barron’s and MarketWatch.)

In a September interview, Russell said: “Bob Bleiberg ... had seen some of my writing and called [to ask if I would] write an article on [the] Dow Theory. ... I quickly agreed and spent the next three nights perfecting an article about Dow Theory. At the time, Wall Street was very gloomy, but my article projected a coming third phase of the bull market. ... Over the next two weeks, I received 300 subscriptions to what I called my new Dow Theory Letters.”

A willingness to buck the consensus would characterize Russell’s career for the next five decades. Russell was in some sense the ultimate contrarian, especially willing to challenge prevailing opinion when it was being held nearly unanimously. That takes guts, but his reward for doing so was catching some of the most momentous changes in the market’s major trend of the past 50 years.

One of those major trend changes for which Russell is famous came in December 1974 at the depths of one of the worst bear markets since the Great Depression. The Dow Jones Industrial Average was nearly 50% below where it had stood at its January 1973 bull-market high, and Wall Street was despondent. Some surveys of investor sentiment failed to find even a single bullish adviser.

Until then, Russell had been correctly bearish, and some even began referring to him as a perma-bear. But, suddenly, he turned bullish. Peter Brimelow, the former MarketWatch columnist who in 1974 was working for the Toronto Financial Post, recalls how momentous this was: “Carlyle Dunbar [the Post’s news editor] stunned the newsroom of the old typewriter-driven [news room] with the news that Russell had turned bullish.”

In early December 1974, the Dow Jones Industrial Average was at 577. By July 1976, it had almost doubled.

Another of Russell’s great calls of a major trend change came in late August 1987, two months before the 1987 Crash, the worst in U.S. stock market history. Russell, speaking at the San Francisco Money Show, took the stage to announce that the 1982-1987 bull market had ended at its Aug. 25 closing high of 2,722.

The mood at that time was at the opposite extreme from where it was in December 1974. I was in the audience, and what stood out was that Russell didn’t equivocate, unlike most of the other speakers at the conference.

Two months later, following Black Monday on Oct. 19, the Dow was at 1,739, 36% lower than two months earlier.

In contrast to catching these and other momentous changes of major trends, Russell’s timing advice for the market’s shorter-term trends was less impressive. This was especially the case over the past decade, when his daily blog sometimes descended into what struck some subscribers as a stream of consciousness and, on occasion, contradicted itself from day to day.

But advisers who are good at catching changes in the market’s major trend rarely excel at short-term market timing, and vice versa. And though neither pursuit is easy, the former — Russell’s specialty — is far rarer. According to the Hulbert Financial Digest, Russell’s market-timing advice in the 1980s and 1990s was at or tied for the best performer among all monitored market timers.

Russell’s enduring legacy may therefore be that catching even some of the market’s major trend changes can make up for many missteps involving the shorter-term trend. And to catch those major trend changes, you must be willing to go against strongly and widely held opinions.

Russell was one of the rare advisers who possessed that willingness, and he will be missed.

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