6.8 Pioneers Get Arrows…Settlers Get Land
Being first doesn’t always yield those results-becoming the standard, like Viagra-as Xerox learned all too well in 1981 when it introduced its 8010 model, an early computer workstation containing the first graphical user interface (GUI) and other now-commonplace innovations. Because the standard for computers at that time was a keyboard-controlled text interface, and because the 8010 could also share data over an Ethernet network, Xerox’s new machine looked like a market winner-even in hindsight. But success didn’t happen. As Brian Winston summarizes the story in his book Media, Technology and Society: A History From the Printing Press to the Superhighway sales languished, while cheaper non-networked computers were enjoying a sales boom. Text also seemed much faster than GUI. GUI didn’t become sales competitive until it became price competitive, when Macintosh came to market and scaled GUI in 1984. GUI scaled even further six years later when Microsoft released its Windows 3.0 operating system.
Another example: Money markets may not have the physical aphrodisiac quality of a magic blue pill, but they are no less interesting for studying cycles. Calling the stock market’s ups and downs sounds like it would be a fairly bloodless undertaking, as devoid of emotion as an IRS auditor. But market gadfly/guru Robert Prechter’s Wave Principle shows otherwise. In 1978, in his book Elliott Wave Principle: Key to Market Behavior, Prechter interrupted the naysayers who were bummed out by rampant double-digit inflation with his assurance that a raging bull market would dominate the ’80s. Then, in 1995, contrarian that he was, Prechter warned the dotcommers that the market would tank big time very soon. Both times, he was essentially right, give or take a few years. (Who’s counting?)
Prechter based his conclusions on his appreciation of mass behavior. He identified investor psychology as the market’s driver and said it swings back and forth between optimism and pessimism in predictable and measurable pendulum movements. Unlike a pendulum, though, these swings aren’t identical in duration. The timing is linked to price shifts that can last anywhere from a few hours to a few centuries. The trick is determining the price patterns and where the market is in that spectrum. Having a nose for timing is everything in forecasting cycles.