Mark Hulbert of MarketWatch wrote an interesting story about the Dow Theory issuing a Sell signal at last Tuesday’s (8/14) close.
According to the article, the editor of one of the three Dow Theory newsletters said ‘yes.’ This fact will certainly not make headline news on Wall Street since in principle it goes against the all too ingrained Buy-and-Hold mentality.
The Dow Theory was introduced over a 30-year period at the beginning of the past century in editorials in the Wall Street Journal. While it is subject to a wide range of interpretation, because it was not specific enough, the rules for its use can vary widely.
My point is that even almost 100 years ago some smart individuals realized that there is a time when not being in the market might be a good thing for the safety of a portfolio. Why it has not become a standard by which financial markets operate can only be attributed to other facts. My guess is that it would not serve the best interest of the majority of brokerage firms, and their armies of hundreds of thousands of sales people, who are transaction based, meaning they need to be in the market to peddle product all the time.
If Charles Dow were alive today, he most certainly would have completed the work he started, especially after realizing the negative impact a bear market can have on the value of a portfolio. My guess is that he could have been the most vehement opponent of Buy and Hold and may have provided a much needed objective sense of reasoning in an unreasonable self serving investment world.