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Richard Russell's Dow Theory Letters offer more than financial advice

On top of the market

“We also have a ‘clarity rating,’ ” Hulbert says, adding that out of about one hundred newsletters studied, “we rate Russell lowest in clarity.” - Image by David Covey
“We also have a ‘clarity rating,’ ” Hulbert says, adding that out of about one hundred newsletters studied, “we rate Russell lowest in clarity.”

This is a story about money — about earning a tremendous amount of it and then knowing what to do with that money. Richard Russell, who lives on a quiet street in the Bird Rock section of La Jolla, has done both. However, the most interesting thing about Russell isn’t his personal wealth but how he acquired most of it. He’s a modern-day fortuneteller. Many years ago, he became convinced that he could foresee, at least to some extent, what was going to happen. Ever since then, he has managed to convince a small but elite group of people that he knows things that can help them get richer.

"Faye and I get to the office [a small suite of rooms on Silverado Street in central La Jolla] at 7AM, and I start thinking or writing (hopefully, both)."

The president of the New York Stock Exchange, for example, is among those who subscribe to Richard Russell’s Dow Theory Letters, the six-page platform from which Russell conducts his biweekly prognostications and for which he charges $225 per year. Russell’s product is one of at least a thousand financial advisory letters currently being published. But for many reasons, Russell’s letter stands out. For one thing, “There are probably only two dozen [of all the newsletters] that have any real impetus or force,” Russell says. “There are probably ten of us that really make good money.” Of those top-earning Wall Street soothsayers, Russell has survived the longest. Throughout the last twenty-eight years, he has lived through two divorces, a heart attack, open-heart surgery, bull markets and bear markets, and crazy, fickle investors — and he’s never missed a single issue. Yesterday he mailed out his 965th consecutive missive.

Russell seems utterly at ease sharing with his readers such intimacies as why his last marriage failed (‘Paula and I [are] just in different worlds. Paula likes to travel, to sparkle, to dress up, to rush and run. I like to think, to stay in one spot").

His seems the ultimate success story, too good to be true. Imagine this: twenty-eight and a half years ago, he placed a small advertisement in Barron’s newspaper, and within a few months, people had sent him something like $25,000 — a lot of money back in 1959 — in order to receive the fledgling newsletter. That was only the beginning. By the mid-Seventies, Russell had built his circulation up to more than 5000 subscribers, and he says that figure has remained relatively constant over the years. So figure it out. If today Russell has 5000 subscribers each paying $225 per year, that means he’s collecting at least $1,125,000 per year. According to one authority, the rule of thumb in the investment-letter industry is that half or even three-quarters of gross revenues can be profit. So Russell is probably netting between $500,000 and $750,000 a year in exchange for regularly producing a few pages of his opinion.

Russell's six-year-old daughter contributed artwork to one of the letters.

In the flesh, nothing about Russell contradicts the suggestion that he is a man to envy. He’s sixty-two years old, but a stranger would have trouble guessing that. He carries only a hint of a paunch, and his face has a tanned, healthy glow, betraying nothing of the fact that he underwent a quintuple bypass operation only last July. He tends to dress in casual slacks and sport shirts, and he greets visitors with an easygoing grin. His home lies on a street heavily scented with the blossoms of well-tended gardens. And inside, where Russell does some writing, an air of serenity is enhanced by well-placed original art works and an expanse of pristine, cream-colored carpeting. This place seems more than 3000 miles away from the hurly-burly of Wall Street, far too relaxed an environment to enable any man to make so much money within it.

"I go to the front door and pick up the New York Times, the Wall Street Journal and USA Today. I read these three papers thoroughly until about 5 AM."

But there is more than meets the eye. The next time you happen to wake up and glance at your clock at 3:30 a.m., think of this: Russell is at that moment starting his day. In one of his January newsletters this year, Russell elaborated on this routine. A lot of his readers, he reasoned, probably wondered, “How does that jerk spend his day? Doesn’t he get tired, just lolling around the beach at La Jolla?” So to “dispel any misconceptions,” Russell offered them this summary. After rising at 3:30,

  • I shave, I put some decaf on for Faye [his young third wife], then I go to the front door and pick up the New York Times, the Wall Street Journal and USA Today (amazingly, they’re all delivered very EARLY out here). I read these three papers thoroughly until about 5 AM. Then I go out and jog (with a radio to my ear) for about 20 minutes. Believe it or not, I like running in the dark. When I return I pick up the San Diego Union and the LA Times, and I read these while I have breakfast. At around 6 AM I wake up Faye (lately she’s been surprising me by waking up herself), and we turn on Financial News Network.
  • Faye and I get to the office [a small suite of rooms on Silverado Street in central La Jolla] at 7AM, and I start thinking or writing (hopefully, both). I read Investors Daily and the Christian Science Monitor and I look through the mail, read letters, investment material, and then back to writing. My office is a block away from Hutton, so I’ll usually walk over there about 10AM (1 PM, NYC time) and check the market. Next, it’s back to work until around mid-day. Then we go home, have a low-calorie lunch, and it’s back to serious reading. I go through the advisory services, the magazines, reports, etc.
  • At 3 p.m. I get the market closing, and I do my daily charts. I’m pretty tired by now, so I grab a half-hour nap. At 4PM my two youngest kids come home from school. Paula, my ex-wife, lives about 5 minutes away, so I run over there to see Lauren, age 6, and Ryan who is 9. They have a lot of energy, and I pretend I do too. By 5 or 5:30 I’m bushe

At this point, Russell digresses, discussing how well he gets along with both his ex-wives and lecturing his readers about his belief that resentment is “the WORST of all emotions. Resentment never ends. It’s the bulldog of emotions. Resentment is guaranteed to POISON your life (by the way, that could be better advice than all the investment advice I could ever give you).” Back to his day, he concludes:

  • By 5PM I’m kind of tired. Around 6PM Faye and I either have some dinner (we’re both early eaters), we might take a walk around town, and then head home. At home I try to relax, talk to Faye, read, maybe watch a VCR movie (I’ve given up going to movie theaters, the VCR approach is so much easier), and then by 9 PM we’re both in z-z-z-z land ...

Russell says he peruses the whole of all those daily newspapers, not just the financial sections. Why so many newspapers? “For some reason, I find I have to read about five or six papers to get a real feeling of what’s going on. If I had to read one paper, I’d read the New York Times. But no paper can cover it all. I find it amazing how you can get items and tidbits out of one. Like the Christian Science Monitor will do a piece that wouldn’t appear any place else. Or USA Today often has an interesting little piece.... If you’re lucky, you can get a feel for the whole picture, if you keep it up and read all the papers.”

And more. Russell also reads a fair number of nonfiction general-interest books (which he commonly reviews in his newsletters). He pores over want ads and fashion publications. He trades with most of the other leading investment newsletters, a dozen or so of which he studies in depth (the rest he just skims). A good fifty or so general-interest magazines are delivered to the Russell residence.

  • Dow Theory Letters, February 25, 1987: Lesser known magazines I recommend are (1) Interview, a rather chic monthly published by Andy Warhol. Excellent interviews with in-the-news people, NYC chit chat, sexy ads.... (2) Manhattan, Inc., the new “Yuppies bible.” In-depth stories about the movers and shakers, particularly those from Gotham. Glossy and fascinating.... (3) New York magazine, a must if you like art, food, movies, theatre, and if you want to know what’s going on in the nation’s culture capital. At least one top article in each issue.... (4) American Heritage, fine historical articles in each issue, great photos, superb writing. A must for history buffs....

He reads so much that he confesses he has come to dislike traveling. “I’m always afraid that I’ll be out of touch with the market. I have all these things to read, and I get this feeling I’m getting out of touch.” Recently he and Faye did take off for three days in New Orleans and six days in New York, but on his return, Russell groused that one of the things about the New York stay that frustrated him was his inability to get newspapers early enough to suit his taste. In New York, “You have to wait until the newsstands open at seven o’clock, and half the time they still don’t have the papers!” He can get more information in San Diego, he declared with some satisfaction.

It wasn’t always that way. When he first moved here in 1961, communications with the East were far more primitive. Russell says neither the New York Times nor the Wall Street Journal was delivered here in those days; he received both in the mail three to five days late. Purely personal reasons had prompted the move. His second daughter, Nicole, was autistic and suffered constant colds in New York’s winters. Desperate to move her to a kinder climate, Russell, a cactus buff, was used to ordering cactus specimens from growers located in San Diego and thus knew that the weather here was warm. Those were the days when common wisdom said “you had to be in New York on Wall Street to write a market letter,” Russell says. So the move was a somewhat daring one.

Russell had been born and bred in New York City, into a family to whom the world of high finance more than once had brought tragedy. One of his grandfathers blew his brains out when the stock market collapse of 1902 took most of his money. Russell’s father managed New York City real estate, but his half-uncle, Irving, invested heavily in the stock market, and when the crash of 1929 cut his income in half, he jumped to his death out a hotel window. Irving left “a good sum of money” to his nephew.

When Russell took control of that money at the age of twenty-one, he had little interest in “managing” it. Just discharged from the Army Air Force (where he had served as a bombardier during World War II), Russell instead daydreamed about becoming a novelist. He got a degree in English literature from New York University, then worked for an advertising agency before settling into a job as a textile designer, work that he says he enjoyed. Only gradually did his interest in the stock market awaken.

“At that time, in the middle Forties, Wall Street was a dead issue,” Russell recalls. “Nobody was interested at all in stocks.” Russell’s curiosity about stocks only bloomed when he began dating a young woman whose family was steeped in the stock market; her father and brothers owned seats on the New York Stock Exchange, and an uncle owned a seat on what is now the American Stock Exchange. Russell became close friends with her oldest brother, “and it wasn’t long before I was totally absorbed with the market.” He took a flyer on stock in a promising new automobile company called Kaiser-Frazier — “and it promptly collapsed.”

Russell says that’s part of what drove him to begin studying the stock market; he wanted to know why he had made such a horrendous mistake. He also had grown troubled by what he perceived to be a lack of insight into “what really made the market tick.” Today Russell says, “Nothing interests me less than gambling. I never gamble. I don’t play cards. I’ve gone to Vegas without spending a quarter in a slot machine. I think it’s stupid. To me gambling is at best excitement, at worst a disease.” And right from the beginning, he never could believe that investing in the stock market ought to be like tossing a coin. There was a logic to the market, he felt with certainty. Surely diligent humans should be able to discern the logic, to crack “the puzzle of what the market is saying today and what it might be saying about tomorrow.”

  • Dow Theory Letters, May 20, 1987:
  • So in my further efforts to understand the market, I began searching through the books at New York’s great main library on 42nd Street. The 42nd Street library boasts a huge economics section with a selection of stock market books second to none. Day after day I would sit in the economics section, sifting through their catalogue, ordering book after book pertaining to the stock market. Nothing, no book that I read, satisfied me as to how the market worked. In frustration, I kept calling for more and more books. I felt that somewhere there had to be an answer.
  • Then one day I came across a volume entitled, “Dow Theory Comment’’ by Robert Rhea. I dove into that volume, and the more I read, the more fascinated I became. The library had collected the complete series of Rhea’s reports written during the fascinating and difficult period of 1932 to 1939. I read and reread those reports. And I was amazed. Here, for the first time, I discovered market writing that seemed to make sense. Robert Rhea, marvel of marvels, really knew how the stock market worked. Rhea’s comments were brilliant, and best of all, I could check what he wrote in his advisory with what actually occurred in the market weeks and months later.
  • I became more than fascinated, I became obsessed. I read Rhea’s work over and over again. I memorized sections of his letters. I typed hundreds of his market comments on 3-by-5-inch index cards. Then I cross-filed the cards. If I wanted to know about nonconfirmations or dull volume or secondary reactions, I had dozens of Rhea’s comments throughout the years all indexed. I read through the Rhea papers so often that the pages became ragged. I grew dizzy from studying Rhea’s Dow Theory observations. At one point, I started to believe that I was the reincarnation of Rhea himself.

What was this marvelous Rosetta stone that Russell had chanced upon? Originally developed by Wall Street Journal founder Charles Dow, the theory posited that stock prices tend to move in broad trends, rather than willy-nilly. (“Bull markets” are those times when most stock prices are rising, while “bear markets” mean general declines.) To help prove his theory, Dow in 1885 took an average of fourteen of the leading stocks of his day, thus getting a daily numerical indicator that could be charted over time to reveal the underlying trend. By 1897 Dow had refined his thinking and developed separate indicators for rail stock and industrial stock prices (today’s Transportation and Industrial Averages), and Dow began studying the interaction of the two indicators, plus daily trading volume. Knowing whether the market is primarily in a bull or bear trend is crucial, Dow theorists believe, since in a bull market you can pick stocks almost at random and make money, while in a bear market investors should shun stocks. The hard part, of course, is pinpointing the precise transition from one to another. Since 1974, for instance, the stock market has generally climbed upward, but there are always zigs and zags in even the most bullish market. So if the market goes down today, is that just another zag? Or is it the first of many plunges downward?

Dow’s successor’s came to believe that careful study of the numbers could reveal the answer to that million-dollar question.

The Dowists’ reverence for market numbers and their graphical representations (in charts) places them in the investing philosophy known as “technical analysis.” Varying schools of technical analysts may look at different numbers or may interpret the numbers differently, but the theme uniting all “technicians” is their belief that you make money on the stock market by looking at past patterns of stock prices. That’s in contrast to the other major investing philosophy, one in which “fundamentalists” assert that sophisticated investors must study the financial data underlying the companies that issue stock — such things as earnings, cash flow, net worth, assets, and the companies’ prospects for future growth.

In the late 1950s, fundamentalists ruled the day, and Russell felt so frustrated by what he saw as the so-called experts’ ignorance that he began writing a market letter based on the Dow Theory for his friends. Soon people he didn’t know began asking him for copies, and he started charging something — he thinks it was fifteen dollars — to cover the cost of the postage. When he had perhaps forty or fifty subscribers, maybe twenty of whom he didn't know, he was contacted by the editor of Barron's (the influential financial newsweekly), who asked Russell to write a column about the Dow Theory. Russell obliged — and placed the ad for his newsletter in the same issue that carried his essay.

Despite all the money that poured in. Russell says it took him about six months to believe he could develop a serious business out of his newsletter. Independent investment letters had appeared as early as the 1890s. But from the Thirties into the early Fifties, the public generally gave a cold shoulder to the stock market, and Russell says even in 1958 very little was really being written about the market. In retrospect, it was a wonderful time to start a market letter. Widespread interest in stocks was just beginning to perk up, and the public was hungry to know more. “Desktop publishing." then in the earliest days of its infancy, was the perfect vehicle for conveying alternative opinion and analysis.

So every ten days, Russell would crank out four pages of instruction and exhortation: “rereading the market,” refining the Dow Theory. “In the old days." he explains, 'when the theory was first used, they didn’t have the daily advances and declines, the daily new highs and lows. The Utility Average didn't come into being until 1929. So as new material and new devices have come in, I've been able to use them, just to back up the basics.” As Russell settled into San Diego — and the rhythm of life as a financial expert — he also took his first tentative steps in a radical direction. Other men had quickly followed Russell into the financial newsletter business, among them such legendary figures as James Dines, Joe Granville, and Harry Schultz, and the growing brotherhood adhered to a literary style characterized by its very impersonal, institutional tone. Personal commentary was “almost forbidden,” Russell recalls. Yet he found himself wanting to know more about the personal side of his fellow letter-writers, and contact with his subscribers increasingly made him feel they wanted to know more about him. So Russell started allowing them glimpses of his personal life, cautiously at first, but with ever-increasing confidence.

Today Russell’s letters (now six pages, biweekly) are stylistically unique. Very striking is their conversational tone, a tone Russell says he struggled for years to master. In contrast to the spiritless, jargon-choked prose to be found in so many investment newsletters, Russell’s breezy offerings read like the kind of correspondence once commonly exchanged between literate, opinionated friends with wide interests. Russell still begins every issue by talking about what’s happening in the stock market. Over the years, he also has added commentary about the dizzying array of other investment vehicles now available, everything from commodity futures to foreign stocks (“things I never dreamed of back in the Forties and Fifties”), plus he makes a point of always giving his readers an update on gold. But now every issue also contains a substantial potpourri — up to two or three pages worth — of other entertaining tidbits.

These days, on paper, he seems utterly at ease sharing with his readers such intimacies as why his last marriage failed (‘Paula and I [are] just in different worlds. Paula likes to travel, to sparkle, to dress up, to rush and run. I like to think, to stay in one spot, and to talk to people on a deep level”) or why he believes in karma (“I firmly believe that the powers above intend man to ADVANCE spiritually and psychically, and the means to man’s advancement are therefore placed in front of him").

It in is these back pages of Russell’s newsletter that his prodigious reading bears its most tantalizing fruit.

  • Dow Theory Letters, November 19, 1986: Question Who’s the biggest private owner of real estate in the world? Answer: McDonalds.
  • Yeah, believe it or not. Big Mac is also Mr. Big Land. But compared to the US government, McDonalds is a piker. Look at these figures. The government owns the following percentages of land in these states: Alaska 85% government owned, Arizona 44%, California 47%, Hawaii 19%, Idaho 63 %, Montana 29%, Nevada 85 %, New Mexico 33%, Oregon 49%, Utah 63%, Washington 29%, Wyoming 49%.
  • AMAZING STATISTIC DEPT: 75% of NYC’s 15,000 restaurants go broke every five years.... 30% of all the white families in the US are single parent families. An astounding 60% of all black families are single-parent families.... Male alcoholics outnumber female alcoholics 7 to 1

Sometimes he lectures his readers about basic investment principles. Sometimes he bluntly assesses current politicians.

  • Dow Theory Letters, October 22, 1986:
  • How did Congress get away with doing literally nothing on the near-crisis problem of the federal deficit? Easy, they got the nation looking in another direction, and the direction was the “national drug problem.”
  • Dow Theory Letters, March 25, 1987:
  • I don’t trust Reagan’s intelligence or analytical ability.... What {the public] sees is a well-meaning, bumbling, aging president, a man who is careless, lazy, and anything but a searcher.

And every so often he tosses in something completely off the wall. In December he outlined the attractions of the business of raising water buffalo. In January he painted a word picture of a scene he witnessed in Harlem back in 1942 involving the great jazz pianist Thelonius Monk. Earlier this month, he published an enthusiastic paragraph that aired the opinion of Auggie Nguyen, the cashier at E.F. Hutton’s La Jolla office, that Uruguay is one of the world’s remaining bargain paradises.

“He’s a fun guy to read. He’s just a crackerjack writer,” says Kennedy Gammage, another La Jollan who writes an investment newsletter (with a much smaller circulation). The Richland Report. Some of Russell’s fans do praise other things about his work. For instance, San Diego State University business professor Bill Nye asserts that Russell “knows more about the history of the stock market than any man alive.” Geraldine Weiss of La Jolla, who writes the successful Investment Quality Trends newsletter and has known Russell for more than twenty years, cites his honesty. “You do get the impression that he is expressing a sincere opinion, if not always a popular one,” she says. But the one thing everyone seems to agree on is that Russell’s writing ability is one of his major assets. “People sort of think of his newsletter as an old friend,” says Mark Hulbert. “They want to curl up in an armchair and read it.”

Hulbert, however, isn’t one of Russell’s biggest fans. He is in fact a formidable critic. The enfant terrible of this industry, Hulbert in 1980 started the Hulbert Financial Digest, an institution whose primary function has been to rate the quality of the investment advisory letters’ advice. By 1985 Hulbert had earned a reputation for monitoring the gurus' performances more thoroughly than anyone else had ever succeeded in doing — and his circulation was up to 14,000. Among those who haven’t stacked up well in those appraisals is Russell.

Hulbert’s basic method has been to build model portfolios based on the recommendations of each newsletter and then to check on how much money the portfolios actually make (or lose). For any adviser to “beat the market,” that adviser’s portfolio must increase in value by more than the increase in the Dow Jones Industrials and their reinvested dividends. By that measure, Russell’s performance has been dismal. According to Hulbert’s figures, if you started in June of 1980 with, say, $5000, and followed Russell’s advice, five years later you would have had $6020. In contrast, if you spent the same money on the thirty Dow Jones Industrials, you would have ended with $10,040. Russell’s overall gain (as Hulbert calculated it) was just 20.4 percent, whereas the ten hottest newsletter writers racked up gains ranging from 272.9 to 92.6 percent. (Russell wasn’t the worst, though; the Holt Investment Advisory was down 28.8 percent, and the Granville Market Letter scored a miserable -45.3 percent.)

In a recent phone interview, Hulbert did express some discomfort with his own ratings of Russell, and he added that as of the beginning of this year, he decided to stop rating Russell’s performance altogether. The problem, Hulbert says, is that Russell rarely offers clear, specific investment advice the way many of his competitors do.

“We also have a ‘clarity rating,’ ” Hulbert says, adding that out of about one hundred newsletters studied, “we rate him lowest in clarity.” Practically, that has meant that Hulbert has had to do a lot more guessing as to exactly which stocks should be included in Russell’s “portfolio” than in those of advisers who precisely spell out which stocks to buy or sell, and when.

A shadow of irritation passes over Russell’s features when the subject of Hulbert arises. He asserts that Hulbert has been applying to Dow Theory Letters a criterion that simply isn’t fair. Hulbert’s business revolves around checking on the investment advisers’ portfolios, but although Russell does at times recommend buying specific stocks, he says he consciously has steered away from recommending specific portfolios. “One of the reasons I’ve stayed in business this long is that I don’t do what these other guys try to do, which is lists of stocks to buy, and so forth. Any brokerage house can do that for you,” Russell says. “I’ve just found that over the years, these guys who provide the portfolios don’t do well. They do well in the bull market, but the old saying is, ‘There are no geniuses in the market; there are only geniuses for a while.’ ” Besides, Russell adds, he thinks knowing which stock to buy is not difficult. “I think that point’s overdone. If the market’s right, it’s really no problem picking stocks. You can buy a good mutual fund. There’s an old adage in Wall Street that says, ‘Don’t tell me what to buy; tell me when to buy it.’ ”

Hulbert also has evaluated market timing of various market newsletters, and by this measure Russell appears to have done better, chalking up a gain of about fifty percent over a five-year period. But Russell stresses that the majority of his subscribers tend to be very sophisticated investors who don’t want to follow anyone’s directives blindly. “They’re not looking for hot tips. They’re looking for appraisals of the market. Their problem is not, ‘What stock do I buy?’ They’re looking for ideas, perspective. They want to check their own concepts against mine. A guy may subscribe and disagree with my whole market forecast, but he’s interested and he tests his own opinions against mine.” The best Russell can offer, he says, is to tell his readers what the market probably will do, based on all the cumulative years of study and insight provided by the Dow Theory.

There are those — namely, the brotherhood of business professors — who bluntly say that a “technical” theory such as Russell’s can’t even do that. Finance professor Bill Nye at San Diego State, who deeply respects Russell and believes that technical analysis can work “handsomely,” is one of a tiny minority. Most academics think technical analysis such as the Dow Theory “is a pig in a poke,” Dye concedes. “There really is no solid theoretical framework for technical analysis,” Dye’s colleague Robert Hutchins asserts. Hutchins says business professors furthermore have conducted one rigorous study after another, trying to confirm that charting past stock market activity can help one to beat the market, all with no success. Hutchins says the academic community looks slightly more favorably upon fundamental analysis (picking stocks based on a study of individual firms) — but not much more favorably. He says most academic studies instead show that investors do best of all by simply throwing darts at the Wall Street Journal — that is, by picking them at random.

Thomas Warschauer, an associate dean in SDSU’s College of Business Administration, elaborates that business professors don’t deny the existence of bull and bear markets. They acknowledge that there may even be broad patterns to stock market behavior. The problem, Warschauer says, is that “the patterns are not something that would help you predict the future.” Relatively small shifts in timing can throw everyone off. “Even if there are cycles, they change enough so that you can’t use them,” Warschauer says. But, “It's very hard to convince an individual that the world is not forecastable,” Warschauer says. “It’s very appealing to think that the world is more orderly than it really is. We’ve never been here before. We’ll never be here again. Tomorrow’s a new day. And that bothers a lot of people.”

Dow Theory Letters, December 31, 1986: Some people claim that the market is a “random walk,” and that no amount of study and no system can make sense of Wall Street. In my guts, I know they’re wrong. The market possesses a logic as surely as plants grow and as surely as the sun rises.

Russell thinks the academics’ hostility toward technical analysis resembles the hostility between orthodox medicine and psychology. Psychology isn’t scientific enough for the doctors, he says. “They don’t care if the fact is that in many cases it works. They’re interested in scientific proof, and there is no proof, say, that psychoanalysis works.” Using the Dow Theory “is very much like surgery,” he continues. “Just from experience, we know that if the guy has an inflamed appendix, we cut it out. Technical analysis is really a matter of trial and error. We know that when certain patterns appear forty or fifty or sixty percent of the time, it’ll do this or that. It’s a cause-effect thing. There’s no scientific proof for it.”

He doesn’t pretend that he’s never made mistakes. Russell says probably the worst one in thirty years was during the bear market of 1962. Stock prices hit bottom toward the end of that year, and Russell claims his Dow Theory indicators told him that the worst was over. “But I had preconceived notions we should go into a major bear market worse than the ’62 collapse. I just thought it should go lower, and the market thought differently.” For about a year, he stayed bearish, “fighting the market” and missing out on profits as stock prices rose.

He says that incident taught him his lesson, and in 1966 he correctly called the bull market top. By the late Sixties, he began telling his subscribers to buy gold, and he says people made fortunes on that recommendation. But his most famous call occurred in 1974, a year when the Dow had sunk below 600, “and many on Wall Street... were on the verge of real panic,” writes Peter Brimelow in his 1986 book on investment newsletters, The Wall Street Gurus. “Conspicuously keeping his head amid all this was Richard Russell of the Dow Theory Letters,” Brimelow writes. “Russell had been unrelievedly bearish since 1966, and many people were beginning to think he had got stuck in that position. But on December 20, 1974, he put out a special issue announcing that, although on December 6 the Dow Industrials had broken through the previous low made in October and reached 577.6, the Dow Transportation Average had not made a new low and therefore had not confirmed the bearish primary trend. The odds were better than fifty-fifty, Russell concluded, that the bear market was over. This turned out to be one of the outstanding calls of recent market history. The market rebounded fiercely in early 1975. On January 27 both the Dow Industrial and Transportation Averages surpassed the highs they had made in November, and Russell announced a Dow Theory confirmation of the bullish primary trend.... Within months the Dow was over 800.” Russell is proud of that forecast, but he doesn’t particularly exploit it to sell more newsletters. His sales approach is remarkably subdued, in fact, in this industry that has developed junk mail promotions into an exclamatory art form. (One sales letter currently making the rounds, for instance, touts its newsletter writer as “the man who has made more money for more people than any investment adviser in history.”) When you call Russell’s office and ask for subscription information, you receive only a sample issue and a puny envelope for sending back your money. In person, and in his newsletters, Russell’s style is more laden with caveats than come-ons.

  • Dow Theory Letters, December 31, 1986: What I prefer to offer is PROBABILITIES. And I’ll let you in on a secret that I learned the hard way: anyone who offers more than probabilities where the stock market is concerned — is either a charlatan or an egomaniac.

But maybe, after all, that’s the secret of the craftiest fortunetellers: to look ahead and artfully describe not one vision of the future but some of the many possibilities. Then, later, people can look back and say, yes, he told us about that. Russell has learned the uses of ambivalence, and he says as much. “If they want answers, I’m the wrong guy,” he declares. “The older you get in this business, the more you realize you can’t provide the answers all the time. Sometimes I just say what the problems are. Like right now, it’s so complex, there isn’t anybody alive who knows exactly what we’re headed into.”

The current stock market provides a good example. For months Russell has been frankly nervous about it; for months he’s been saying it looks like Dow’s classic “third stage” of a bull market, the stage just before a collapse. So he’s been urging his readers to sell their stocks. He’s urging them to buy gold. Yet as of early this week, his Dow Theory indicators still had not shown the onset of a bear market, and Russell has acknowledged that the Dow Jones Industrials could climb from the 2200 range to 3000. Maybe to 3500. He says he hopes that will happen. He just doesn’t want to bet on it. “It does not look good.”

He says he hopes the current bull market is a precursor to a global boom. Russell has heard inspirational scenarios, and in December he outlined one for his readers: Stunning breakthroughs in computer technology make natural resources less important. Low American taxes attract the best brains in the world, as well as entrepreneurs and investors. That pressure forces other countries to cut their taxes too, and world productivity soars. It’s all “certainly plausible,” Russell declared in that issue.

But more commonly in recent months, he’s offered his readers grimmer fare. Last October he dabbled in science fiction, with a look at a 1995 reunion of today’s stock market gurus (himself included), all reminiscing about what had precipitated the Great Disaster. In November he offered a list of seven nightmarish financial disasters. One day recently, sitting in his living room, Russell continued on the same bleak note. “The country is basically sort of bankrupt now,” he said. “We’re a banana republic now. There’s just no easy way out, unfortunately. The whole country is over its head in debt. Up to now, the easy way has been to sell the debt [that is, to sell treasury bonds to foreign investors, principally Japanese]. But we’re coming to the end of the road there. Ultimately, you’ve got to take the pain. We’ve been putting it off for decades, by borrowing.” But we can’t put it off forever, he’s certain. The pain could take the form of “all-out inflation,” though Russell thinks a worldwide deflation/depression is more likely. “When this thing happens, everybody’s going to get hurt. The winner’s going to be the one that gets hurt the least.”

That’s one reason he thinks it's useless to talk about escaping the coming financial disaster. He revealed another reason in one of his issues last August. Russell reprinted a letter he had received on his birthday from Harry Schultz, editor of the International Harry Schultz Letter and confirmed prophet of doom. It was the kind of warning to send chills down anyone’s spine. “I’m coming to the opinion the whole scene will disintegrate before too long,” Shultz warned.

Deflation, depression, credit crash, banks closure, runaway AIDS plague, US exchange controls, Orwellian new $-bills, earthquakes (Calif flattened? RR moves to Monte Carlo?), SoAfr cut off by USSR so West is at mercy of USSR, BigBrother supremacy over the individual. I fear a gooey mess soon, where we all lose... A new Dark Age looms ...

Didn’t Russell want to join him (and several other newsletter writers) in Monte Carlo? Schultz implored. Russell then reprinted his answer.

  • Sure I'd like to join you. but it could only be for a few weeks. Then it would be back to the USA for me. Harry, I know you’ve keen saying for years that the US is heading for major trouble. And I’m not going to argue with you, because I’m afraid you could be ver\ right. And Monte Carlo sounds fabulous, and w hat’s more I’ve got the wherewithal now to pack up and move to Monte Carlo and well — to retire there. We’d probably have the time of our lives, but I can’t do it. And I’ll tell you why in a single sentence: my heart ... is rooted here in the US, Harry. If Monte Carlo was paradise itself (and it may well be) I still couldn’t leave. My roots are too deep, Harry, they go down into half the states of the union.

Russell then spent more than a singlespaced page telling Schultz (and Russell’s readers) about those roots, about the great-great-great-grandfather who served as an officer in George Washington’s army (“He was a Jew, which makes me a kind of a rare bird, a Jewish Son of the American Revolution”); about the great-great-grandfather killed in the Civil War; about his grand-father and his father and his hapless uncle Irving. He talked about his mother (a best-selling author who lives now in La Jolla), and about each of his ex-wives and all his children, and his current wife Faye, and Russell concluded, “I can't pack up and leave the US.... Harry, I know you probably disagree with me, but the US is where the “Freedom Buck” stops. If this country can’t survive one way or another, then I don’t know how I’m going to survive or my family is going to survive either.... I’m a football fan, and they don’t play football in Monte Carlo. That’s one thing that worries me about moving. The other is that my family has had too much blood spilled on American soil.... This is where my heart is,Harry, and if the ship is going down I guess I’m going to go with it. In the meantime, I’m writing my head off as usual, trying to do some good, and trying to get a few ideas across.” Although Russell didn’t write about it in that letter, there’s another reason he’s not about to retire — to Monte Carlo or elsewhere. He’s addicted to being a financial guru. He’s addicted to reading all those newspapers, to sifting through all that information, to trying to master the endlessly challenging puzzle of the market. Russell says he’s often wondered how many man-hours are applied to the stock market every week. “It’s unbelievable! Millions of hours, trying to figure this thing out. When a million people are out trying to dig into the same thing, it becomes very, very difficult. You’re really fighting the best minds in the country.” But it’s a fight with the power to hold a man, to make his pulse race even after thirty years.

You could see that one recent morning when Russell and his wife walked over to the E.F. Hutton office across Herschel Street from the Dow Theory Letters office. As usual, the Russells’ broker was out of town, but Faye casually took command of the computer terminal sitting on his desk. Younger than Russell’s eldest daughter, Faye is a quiet, studious-looking woman blessed with a luxuriant head of hair that varies in color from butter yellow to caramel brown. On that morning, she wore a red velour running suit and no make-up. She and Russell are nearly inseparable; she prepares all the charts for his newsletters, and Russell says she (unlike him) has an uncanny talent for stock market speculation.

She and Russell pay close attention to what's happening to the stock market every day, but on this particular morning, Faye had an added concern. She had bought “puts” on the Standard and Poor index of 500 stocks — a complex and risky speculation that had done well and would continue to do so as long as the stock market remained steady. When the market went down, she would lose money. So was the market going down? That day the Treasury Department was holding a particularly big bond sale. Would Japanese investors come through yet again and buy in quantity? If the Japanese hesitated, how high would interest rates climb? Russell and his wife looked edgy.

Methodically, automatically, Faye’s slender fingers tapped out the brief codes requesting one block of information after another: volume of trading, bond prices, most active stocks, interest rates, commodity futures. Each time she tapped the “return” key, columns of green figures scrolled onto the screen. “Jesus,” Russell muttered at one batch. “But look at this,” Faye commented at another. Both leaned toward the screen, rapt, totally engaged by the lighted symbols, straining to weigh them, to fit them together, to make them into a mental picture.

“So far nothing’s falling apart. That’s a good sign,” Russell judged at last. “What are you going to do?” he asked his wife and then visibly relaxed, adding, “I’m glad I’m not making the decision.”

She stared at the terminal screen, expressionless as a card player. And as she pondered, Russell seemed to take yet another mental step backward. Sometimes, he commented, he looks at how complicated the market has gotten, and it astounds him. He thinks of how stupefied his 1960s self would have been if he could have come forward to see this. But no one could have been that much of a seer.

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“We also have a ‘clarity rating,’ ” Hulbert says, adding that out of about one hundred newsletters studied, “we rate Russell lowest in clarity.” - Image by David Covey
“We also have a ‘clarity rating,’ ” Hulbert says, adding that out of about one hundred newsletters studied, “we rate Russell lowest in clarity.”

This is a story about money — about earning a tremendous amount of it and then knowing what to do with that money. Richard Russell, who lives on a quiet street in the Bird Rock section of La Jolla, has done both. However, the most interesting thing about Russell isn’t his personal wealth but how he acquired most of it. He’s a modern-day fortuneteller. Many years ago, he became convinced that he could foresee, at least to some extent, what was going to happen. Ever since then, he has managed to convince a small but elite group of people that he knows things that can help them get richer.

"Faye and I get to the office [a small suite of rooms on Silverado Street in central La Jolla] at 7AM, and I start thinking or writing (hopefully, both)."

The president of the New York Stock Exchange, for example, is among those who subscribe to Richard Russell’s Dow Theory Letters, the six-page platform from which Russell conducts his biweekly prognostications and for which he charges $225 per year. Russell’s product is one of at least a thousand financial advisory letters currently being published. But for many reasons, Russell’s letter stands out. For one thing, “There are probably only two dozen [of all the newsletters] that have any real impetus or force,” Russell says. “There are probably ten of us that really make good money.” Of those top-earning Wall Street soothsayers, Russell has survived the longest. Throughout the last twenty-eight years, he has lived through two divorces, a heart attack, open-heart surgery, bull markets and bear markets, and crazy, fickle investors — and he’s never missed a single issue. Yesterday he mailed out his 965th consecutive missive.

Russell seems utterly at ease sharing with his readers such intimacies as why his last marriage failed (‘Paula and I [are] just in different worlds. Paula likes to travel, to sparkle, to dress up, to rush and run. I like to think, to stay in one spot").

His seems the ultimate success story, too good to be true. Imagine this: twenty-eight and a half years ago, he placed a small advertisement in Barron’s newspaper, and within a few months, people had sent him something like $25,000 — a lot of money back in 1959 — in order to receive the fledgling newsletter. That was only the beginning. By the mid-Seventies, Russell had built his circulation up to more than 5000 subscribers, and he says that figure has remained relatively constant over the years. So figure it out. If today Russell has 5000 subscribers each paying $225 per year, that means he’s collecting at least $1,125,000 per year. According to one authority, the rule of thumb in the investment-letter industry is that half or even three-quarters of gross revenues can be profit. So Russell is probably netting between $500,000 and $750,000 a year in exchange for regularly producing a few pages of his opinion.

Russell's six-year-old daughter contributed artwork to one of the letters.

In the flesh, nothing about Russell contradicts the suggestion that he is a man to envy. He’s sixty-two years old, but a stranger would have trouble guessing that. He carries only a hint of a paunch, and his face has a tanned, healthy glow, betraying nothing of the fact that he underwent a quintuple bypass operation only last July. He tends to dress in casual slacks and sport shirts, and he greets visitors with an easygoing grin. His home lies on a street heavily scented with the blossoms of well-tended gardens. And inside, where Russell does some writing, an air of serenity is enhanced by well-placed original art works and an expanse of pristine, cream-colored carpeting. This place seems more than 3000 miles away from the hurly-burly of Wall Street, far too relaxed an environment to enable any man to make so much money within it.

"I go to the front door and pick up the New York Times, the Wall Street Journal and USA Today. I read these three papers thoroughly until about 5 AM."

But there is more than meets the eye. The next time you happen to wake up and glance at your clock at 3:30 a.m., think of this: Russell is at that moment starting his day. In one of his January newsletters this year, Russell elaborated on this routine. A lot of his readers, he reasoned, probably wondered, “How does that jerk spend his day? Doesn’t he get tired, just lolling around the beach at La Jolla?” So to “dispel any misconceptions,” Russell offered them this summary. After rising at 3:30,

  • I shave, I put some decaf on for Faye [his young third wife], then I go to the front door and pick up the New York Times, the Wall Street Journal and USA Today (amazingly, they’re all delivered very EARLY out here). I read these three papers thoroughly until about 5 AM. Then I go out and jog (with a radio to my ear) for about 20 minutes. Believe it or not, I like running in the dark. When I return I pick up the San Diego Union and the LA Times, and I read these while I have breakfast. At around 6 AM I wake up Faye (lately she’s been surprising me by waking up herself), and we turn on Financial News Network.
  • Faye and I get to the office [a small suite of rooms on Silverado Street in central La Jolla] at 7AM, and I start thinking or writing (hopefully, both). I read Investors Daily and the Christian Science Monitor and I look through the mail, read letters, investment material, and then back to writing. My office is a block away from Hutton, so I’ll usually walk over there about 10AM (1 PM, NYC time) and check the market. Next, it’s back to work until around mid-day. Then we go home, have a low-calorie lunch, and it’s back to serious reading. I go through the advisory services, the magazines, reports, etc.
  • At 3 p.m. I get the market closing, and I do my daily charts. I’m pretty tired by now, so I grab a half-hour nap. At 4PM my two youngest kids come home from school. Paula, my ex-wife, lives about 5 minutes away, so I run over there to see Lauren, age 6, and Ryan who is 9. They have a lot of energy, and I pretend I do too. By 5 or 5:30 I’m bushe

At this point, Russell digresses, discussing how well he gets along with both his ex-wives and lecturing his readers about his belief that resentment is “the WORST of all emotions. Resentment never ends. It’s the bulldog of emotions. Resentment is guaranteed to POISON your life (by the way, that could be better advice than all the investment advice I could ever give you).” Back to his day, he concludes:

  • By 5PM I’m kind of tired. Around 6PM Faye and I either have some dinner (we’re both early eaters), we might take a walk around town, and then head home. At home I try to relax, talk to Faye, read, maybe watch a VCR movie (I’ve given up going to movie theaters, the VCR approach is so much easier), and then by 9 PM we’re both in z-z-z-z land ...

Russell says he peruses the whole of all those daily newspapers, not just the financial sections. Why so many newspapers? “For some reason, I find I have to read about five or six papers to get a real feeling of what’s going on. If I had to read one paper, I’d read the New York Times. But no paper can cover it all. I find it amazing how you can get items and tidbits out of one. Like the Christian Science Monitor will do a piece that wouldn’t appear any place else. Or USA Today often has an interesting little piece.... If you’re lucky, you can get a feel for the whole picture, if you keep it up and read all the papers.”

And more. Russell also reads a fair number of nonfiction general-interest books (which he commonly reviews in his newsletters). He pores over want ads and fashion publications. He trades with most of the other leading investment newsletters, a dozen or so of which he studies in depth (the rest he just skims). A good fifty or so general-interest magazines are delivered to the Russell residence.

  • Dow Theory Letters, February 25, 1987: Lesser known magazines I recommend are (1) Interview, a rather chic monthly published by Andy Warhol. Excellent interviews with in-the-news people, NYC chit chat, sexy ads.... (2) Manhattan, Inc., the new “Yuppies bible.” In-depth stories about the movers and shakers, particularly those from Gotham. Glossy and fascinating.... (3) New York magazine, a must if you like art, food, movies, theatre, and if you want to know what’s going on in the nation’s culture capital. At least one top article in each issue.... (4) American Heritage, fine historical articles in each issue, great photos, superb writing. A must for history buffs....

He reads so much that he confesses he has come to dislike traveling. “I’m always afraid that I’ll be out of touch with the market. I have all these things to read, and I get this feeling I’m getting out of touch.” Recently he and Faye did take off for three days in New Orleans and six days in New York, but on his return, Russell groused that one of the things about the New York stay that frustrated him was his inability to get newspapers early enough to suit his taste. In New York, “You have to wait until the newsstands open at seven o’clock, and half the time they still don’t have the papers!” He can get more information in San Diego, he declared with some satisfaction.

It wasn’t always that way. When he first moved here in 1961, communications with the East were far more primitive. Russell says neither the New York Times nor the Wall Street Journal was delivered here in those days; he received both in the mail three to five days late. Purely personal reasons had prompted the move. His second daughter, Nicole, was autistic and suffered constant colds in New York’s winters. Desperate to move her to a kinder climate, Russell, a cactus buff, was used to ordering cactus specimens from growers located in San Diego and thus knew that the weather here was warm. Those were the days when common wisdom said “you had to be in New York on Wall Street to write a market letter,” Russell says. So the move was a somewhat daring one.

Russell had been born and bred in New York City, into a family to whom the world of high finance more than once had brought tragedy. One of his grandfathers blew his brains out when the stock market collapse of 1902 took most of his money. Russell’s father managed New York City real estate, but his half-uncle, Irving, invested heavily in the stock market, and when the crash of 1929 cut his income in half, he jumped to his death out a hotel window. Irving left “a good sum of money” to his nephew.

When Russell took control of that money at the age of twenty-one, he had little interest in “managing” it. Just discharged from the Army Air Force (where he had served as a bombardier during World War II), Russell instead daydreamed about becoming a novelist. He got a degree in English literature from New York University, then worked for an advertising agency before settling into a job as a textile designer, work that he says he enjoyed. Only gradually did his interest in the stock market awaken.

“At that time, in the middle Forties, Wall Street was a dead issue,” Russell recalls. “Nobody was interested at all in stocks.” Russell’s curiosity about stocks only bloomed when he began dating a young woman whose family was steeped in the stock market; her father and brothers owned seats on the New York Stock Exchange, and an uncle owned a seat on what is now the American Stock Exchange. Russell became close friends with her oldest brother, “and it wasn’t long before I was totally absorbed with the market.” He took a flyer on stock in a promising new automobile company called Kaiser-Frazier — “and it promptly collapsed.”

Russell says that’s part of what drove him to begin studying the stock market; he wanted to know why he had made such a horrendous mistake. He also had grown troubled by what he perceived to be a lack of insight into “what really made the market tick.” Today Russell says, “Nothing interests me less than gambling. I never gamble. I don’t play cards. I’ve gone to Vegas without spending a quarter in a slot machine. I think it’s stupid. To me gambling is at best excitement, at worst a disease.” And right from the beginning, he never could believe that investing in the stock market ought to be like tossing a coin. There was a logic to the market, he felt with certainty. Surely diligent humans should be able to discern the logic, to crack “the puzzle of what the market is saying today and what it might be saying about tomorrow.”

  • Dow Theory Letters, May 20, 1987:
  • So in my further efforts to understand the market, I began searching through the books at New York’s great main library on 42nd Street. The 42nd Street library boasts a huge economics section with a selection of stock market books second to none. Day after day I would sit in the economics section, sifting through their catalogue, ordering book after book pertaining to the stock market. Nothing, no book that I read, satisfied me as to how the market worked. In frustration, I kept calling for more and more books. I felt that somewhere there had to be an answer.
  • Then one day I came across a volume entitled, “Dow Theory Comment’’ by Robert Rhea. I dove into that volume, and the more I read, the more fascinated I became. The library had collected the complete series of Rhea’s reports written during the fascinating and difficult period of 1932 to 1939. I read and reread those reports. And I was amazed. Here, for the first time, I discovered market writing that seemed to make sense. Robert Rhea, marvel of marvels, really knew how the stock market worked. Rhea’s comments were brilliant, and best of all, I could check what he wrote in his advisory with what actually occurred in the market weeks and months later.
  • I became more than fascinated, I became obsessed. I read Rhea’s work over and over again. I memorized sections of his letters. I typed hundreds of his market comments on 3-by-5-inch index cards. Then I cross-filed the cards. If I wanted to know about nonconfirmations or dull volume or secondary reactions, I had dozens of Rhea’s comments throughout the years all indexed. I read through the Rhea papers so often that the pages became ragged. I grew dizzy from studying Rhea’s Dow Theory observations. At one point, I started to believe that I was the reincarnation of Rhea himself.

What was this marvelous Rosetta stone that Russell had chanced upon? Originally developed by Wall Street Journal founder Charles Dow, the theory posited that stock prices tend to move in broad trends, rather than willy-nilly. (“Bull markets” are those times when most stock prices are rising, while “bear markets” mean general declines.) To help prove his theory, Dow in 1885 took an average of fourteen of the leading stocks of his day, thus getting a daily numerical indicator that could be charted over time to reveal the underlying trend. By 1897 Dow had refined his thinking and developed separate indicators for rail stock and industrial stock prices (today’s Transportation and Industrial Averages), and Dow began studying the interaction of the two indicators, plus daily trading volume. Knowing whether the market is primarily in a bull or bear trend is crucial, Dow theorists believe, since in a bull market you can pick stocks almost at random and make money, while in a bear market investors should shun stocks. The hard part, of course, is pinpointing the precise transition from one to another. Since 1974, for instance, the stock market has generally climbed upward, but there are always zigs and zags in even the most bullish market. So if the market goes down today, is that just another zag? Or is it the first of many plunges downward?

Dow’s successor’s came to believe that careful study of the numbers could reveal the answer to that million-dollar question.

The Dowists’ reverence for market numbers and their graphical representations (in charts) places them in the investing philosophy known as “technical analysis.” Varying schools of technical analysts may look at different numbers or may interpret the numbers differently, but the theme uniting all “technicians” is their belief that you make money on the stock market by looking at past patterns of stock prices. That’s in contrast to the other major investing philosophy, one in which “fundamentalists” assert that sophisticated investors must study the financial data underlying the companies that issue stock — such things as earnings, cash flow, net worth, assets, and the companies’ prospects for future growth.

In the late 1950s, fundamentalists ruled the day, and Russell felt so frustrated by what he saw as the so-called experts’ ignorance that he began writing a market letter based on the Dow Theory for his friends. Soon people he didn’t know began asking him for copies, and he started charging something — he thinks it was fifteen dollars — to cover the cost of the postage. When he had perhaps forty or fifty subscribers, maybe twenty of whom he didn't know, he was contacted by the editor of Barron's (the influential financial newsweekly), who asked Russell to write a column about the Dow Theory. Russell obliged — and placed the ad for his newsletter in the same issue that carried his essay.

Despite all the money that poured in. Russell says it took him about six months to believe he could develop a serious business out of his newsletter. Independent investment letters had appeared as early as the 1890s. But from the Thirties into the early Fifties, the public generally gave a cold shoulder to the stock market, and Russell says even in 1958 very little was really being written about the market. In retrospect, it was a wonderful time to start a market letter. Widespread interest in stocks was just beginning to perk up, and the public was hungry to know more. “Desktop publishing." then in the earliest days of its infancy, was the perfect vehicle for conveying alternative opinion and analysis.

So every ten days, Russell would crank out four pages of instruction and exhortation: “rereading the market,” refining the Dow Theory. “In the old days." he explains, 'when the theory was first used, they didn’t have the daily advances and declines, the daily new highs and lows. The Utility Average didn't come into being until 1929. So as new material and new devices have come in, I've been able to use them, just to back up the basics.” As Russell settled into San Diego — and the rhythm of life as a financial expert — he also took his first tentative steps in a radical direction. Other men had quickly followed Russell into the financial newsletter business, among them such legendary figures as James Dines, Joe Granville, and Harry Schultz, and the growing brotherhood adhered to a literary style characterized by its very impersonal, institutional tone. Personal commentary was “almost forbidden,” Russell recalls. Yet he found himself wanting to know more about the personal side of his fellow letter-writers, and contact with his subscribers increasingly made him feel they wanted to know more about him. So Russell started allowing them glimpses of his personal life, cautiously at first, but with ever-increasing confidence.

Today Russell’s letters (now six pages, biweekly) are stylistically unique. Very striking is their conversational tone, a tone Russell says he struggled for years to master. In contrast to the spiritless, jargon-choked prose to be found in so many investment newsletters, Russell’s breezy offerings read like the kind of correspondence once commonly exchanged between literate, opinionated friends with wide interests. Russell still begins every issue by talking about what’s happening in the stock market. Over the years, he also has added commentary about the dizzying array of other investment vehicles now available, everything from commodity futures to foreign stocks (“things I never dreamed of back in the Forties and Fifties”), plus he makes a point of always giving his readers an update on gold. But now every issue also contains a substantial potpourri — up to two or three pages worth — of other entertaining tidbits.

These days, on paper, he seems utterly at ease sharing with his readers such intimacies as why his last marriage failed (‘Paula and I [are] just in different worlds. Paula likes to travel, to sparkle, to dress up, to rush and run. I like to think, to stay in one spot, and to talk to people on a deep level”) or why he believes in karma (“I firmly believe that the powers above intend man to ADVANCE spiritually and psychically, and the means to man’s advancement are therefore placed in front of him").

It in is these back pages of Russell’s newsletter that his prodigious reading bears its most tantalizing fruit.

  • Dow Theory Letters, November 19, 1986: Question Who’s the biggest private owner of real estate in the world? Answer: McDonalds.
  • Yeah, believe it or not. Big Mac is also Mr. Big Land. But compared to the US government, McDonalds is a piker. Look at these figures. The government owns the following percentages of land in these states: Alaska 85% government owned, Arizona 44%, California 47%, Hawaii 19%, Idaho 63 %, Montana 29%, Nevada 85 %, New Mexico 33%, Oregon 49%, Utah 63%, Washington 29%, Wyoming 49%.
  • AMAZING STATISTIC DEPT: 75% of NYC’s 15,000 restaurants go broke every five years.... 30% of all the white families in the US are single parent families. An astounding 60% of all black families are single-parent families.... Male alcoholics outnumber female alcoholics 7 to 1

Sometimes he lectures his readers about basic investment principles. Sometimes he bluntly assesses current politicians.

  • Dow Theory Letters, October 22, 1986:
  • How did Congress get away with doing literally nothing on the near-crisis problem of the federal deficit? Easy, they got the nation looking in another direction, and the direction was the “national drug problem.”
  • Dow Theory Letters, March 25, 1987:
  • I don’t trust Reagan’s intelligence or analytical ability.... What {the public] sees is a well-meaning, bumbling, aging president, a man who is careless, lazy, and anything but a searcher.

And every so often he tosses in something completely off the wall. In December he outlined the attractions of the business of raising water buffalo. In January he painted a word picture of a scene he witnessed in Harlem back in 1942 involving the great jazz pianist Thelonius Monk. Earlier this month, he published an enthusiastic paragraph that aired the opinion of Auggie Nguyen, the cashier at E.F. Hutton’s La Jolla office, that Uruguay is one of the world’s remaining bargain paradises.

“He’s a fun guy to read. He’s just a crackerjack writer,” says Kennedy Gammage, another La Jollan who writes an investment newsletter (with a much smaller circulation). The Richland Report. Some of Russell’s fans do praise other things about his work. For instance, San Diego State University business professor Bill Nye asserts that Russell “knows more about the history of the stock market than any man alive.” Geraldine Weiss of La Jolla, who writes the successful Investment Quality Trends newsletter and has known Russell for more than twenty years, cites his honesty. “You do get the impression that he is expressing a sincere opinion, if not always a popular one,” she says. But the one thing everyone seems to agree on is that Russell’s writing ability is one of his major assets. “People sort of think of his newsletter as an old friend,” says Mark Hulbert. “They want to curl up in an armchair and read it.”

Hulbert, however, isn’t one of Russell’s biggest fans. He is in fact a formidable critic. The enfant terrible of this industry, Hulbert in 1980 started the Hulbert Financial Digest, an institution whose primary function has been to rate the quality of the investment advisory letters’ advice. By 1985 Hulbert had earned a reputation for monitoring the gurus' performances more thoroughly than anyone else had ever succeeded in doing — and his circulation was up to 14,000. Among those who haven’t stacked up well in those appraisals is Russell.

Hulbert’s basic method has been to build model portfolios based on the recommendations of each newsletter and then to check on how much money the portfolios actually make (or lose). For any adviser to “beat the market,” that adviser’s portfolio must increase in value by more than the increase in the Dow Jones Industrials and their reinvested dividends. By that measure, Russell’s performance has been dismal. According to Hulbert’s figures, if you started in June of 1980 with, say, $5000, and followed Russell’s advice, five years later you would have had $6020. In contrast, if you spent the same money on the thirty Dow Jones Industrials, you would have ended with $10,040. Russell’s overall gain (as Hulbert calculated it) was just 20.4 percent, whereas the ten hottest newsletter writers racked up gains ranging from 272.9 to 92.6 percent. (Russell wasn’t the worst, though; the Holt Investment Advisory was down 28.8 percent, and the Granville Market Letter scored a miserable -45.3 percent.)

In a recent phone interview, Hulbert did express some discomfort with his own ratings of Russell, and he added that as of the beginning of this year, he decided to stop rating Russell’s performance altogether. The problem, Hulbert says, is that Russell rarely offers clear, specific investment advice the way many of his competitors do.

“We also have a ‘clarity rating,’ ” Hulbert says, adding that out of about one hundred newsletters studied, “we rate him lowest in clarity.” Practically, that has meant that Hulbert has had to do a lot more guessing as to exactly which stocks should be included in Russell’s “portfolio” than in those of advisers who precisely spell out which stocks to buy or sell, and when.

A shadow of irritation passes over Russell’s features when the subject of Hulbert arises. He asserts that Hulbert has been applying to Dow Theory Letters a criterion that simply isn’t fair. Hulbert’s business revolves around checking on the investment advisers’ portfolios, but although Russell does at times recommend buying specific stocks, he says he consciously has steered away from recommending specific portfolios. “One of the reasons I’ve stayed in business this long is that I don’t do what these other guys try to do, which is lists of stocks to buy, and so forth. Any brokerage house can do that for you,” Russell says. “I’ve just found that over the years, these guys who provide the portfolios don’t do well. They do well in the bull market, but the old saying is, ‘There are no geniuses in the market; there are only geniuses for a while.’ ” Besides, Russell adds, he thinks knowing which stock to buy is not difficult. “I think that point’s overdone. If the market’s right, it’s really no problem picking stocks. You can buy a good mutual fund. There’s an old adage in Wall Street that says, ‘Don’t tell me what to buy; tell me when to buy it.’ ”

Hulbert also has evaluated market timing of various market newsletters, and by this measure Russell appears to have done better, chalking up a gain of about fifty percent over a five-year period. But Russell stresses that the majority of his subscribers tend to be very sophisticated investors who don’t want to follow anyone’s directives blindly. “They’re not looking for hot tips. They’re looking for appraisals of the market. Their problem is not, ‘What stock do I buy?’ They’re looking for ideas, perspective. They want to check their own concepts against mine. A guy may subscribe and disagree with my whole market forecast, but he’s interested and he tests his own opinions against mine.” The best Russell can offer, he says, is to tell his readers what the market probably will do, based on all the cumulative years of study and insight provided by the Dow Theory.

There are those — namely, the brotherhood of business professors — who bluntly say that a “technical” theory such as Russell’s can’t even do that. Finance professor Bill Nye at San Diego State, who deeply respects Russell and believes that technical analysis can work “handsomely,” is one of a tiny minority. Most academics think technical analysis such as the Dow Theory “is a pig in a poke,” Dye concedes. “There really is no solid theoretical framework for technical analysis,” Dye’s colleague Robert Hutchins asserts. Hutchins says business professors furthermore have conducted one rigorous study after another, trying to confirm that charting past stock market activity can help one to beat the market, all with no success. Hutchins says the academic community looks slightly more favorably upon fundamental analysis (picking stocks based on a study of individual firms) — but not much more favorably. He says most academic studies instead show that investors do best of all by simply throwing darts at the Wall Street Journal — that is, by picking them at random.

Thomas Warschauer, an associate dean in SDSU’s College of Business Administration, elaborates that business professors don’t deny the existence of bull and bear markets. They acknowledge that there may even be broad patterns to stock market behavior. The problem, Warschauer says, is that “the patterns are not something that would help you predict the future.” Relatively small shifts in timing can throw everyone off. “Even if there are cycles, they change enough so that you can’t use them,” Warschauer says. But, “It's very hard to convince an individual that the world is not forecastable,” Warschauer says. “It’s very appealing to think that the world is more orderly than it really is. We’ve never been here before. We’ll never be here again. Tomorrow’s a new day. And that bothers a lot of people.”

Dow Theory Letters, December 31, 1986: Some people claim that the market is a “random walk,” and that no amount of study and no system can make sense of Wall Street. In my guts, I know they’re wrong. The market possesses a logic as surely as plants grow and as surely as the sun rises.

Russell thinks the academics’ hostility toward technical analysis resembles the hostility between orthodox medicine and psychology. Psychology isn’t scientific enough for the doctors, he says. “They don’t care if the fact is that in many cases it works. They’re interested in scientific proof, and there is no proof, say, that psychoanalysis works.” Using the Dow Theory “is very much like surgery,” he continues. “Just from experience, we know that if the guy has an inflamed appendix, we cut it out. Technical analysis is really a matter of trial and error. We know that when certain patterns appear forty or fifty or sixty percent of the time, it’ll do this or that. It’s a cause-effect thing. There’s no scientific proof for it.”

He doesn’t pretend that he’s never made mistakes. Russell says probably the worst one in thirty years was during the bear market of 1962. Stock prices hit bottom toward the end of that year, and Russell claims his Dow Theory indicators told him that the worst was over. “But I had preconceived notions we should go into a major bear market worse than the ’62 collapse. I just thought it should go lower, and the market thought differently.” For about a year, he stayed bearish, “fighting the market” and missing out on profits as stock prices rose.

He says that incident taught him his lesson, and in 1966 he correctly called the bull market top. By the late Sixties, he began telling his subscribers to buy gold, and he says people made fortunes on that recommendation. But his most famous call occurred in 1974, a year when the Dow had sunk below 600, “and many on Wall Street... were on the verge of real panic,” writes Peter Brimelow in his 1986 book on investment newsletters, The Wall Street Gurus. “Conspicuously keeping his head amid all this was Richard Russell of the Dow Theory Letters,” Brimelow writes. “Russell had been unrelievedly bearish since 1966, and many people were beginning to think he had got stuck in that position. But on December 20, 1974, he put out a special issue announcing that, although on December 6 the Dow Industrials had broken through the previous low made in October and reached 577.6, the Dow Transportation Average had not made a new low and therefore had not confirmed the bearish primary trend. The odds were better than fifty-fifty, Russell concluded, that the bear market was over. This turned out to be one of the outstanding calls of recent market history. The market rebounded fiercely in early 1975. On January 27 both the Dow Industrial and Transportation Averages surpassed the highs they had made in November, and Russell announced a Dow Theory confirmation of the bullish primary trend.... Within months the Dow was over 800.” Russell is proud of that forecast, but he doesn’t particularly exploit it to sell more newsletters. His sales approach is remarkably subdued, in fact, in this industry that has developed junk mail promotions into an exclamatory art form. (One sales letter currently making the rounds, for instance, touts its newsletter writer as “the man who has made more money for more people than any investment adviser in history.”) When you call Russell’s office and ask for subscription information, you receive only a sample issue and a puny envelope for sending back your money. In person, and in his newsletters, Russell’s style is more laden with caveats than come-ons.

  • Dow Theory Letters, December 31, 1986: What I prefer to offer is PROBABILITIES. And I’ll let you in on a secret that I learned the hard way: anyone who offers more than probabilities where the stock market is concerned — is either a charlatan or an egomaniac.

But maybe, after all, that’s the secret of the craftiest fortunetellers: to look ahead and artfully describe not one vision of the future but some of the many possibilities. Then, later, people can look back and say, yes, he told us about that. Russell has learned the uses of ambivalence, and he says as much. “If they want answers, I’m the wrong guy,” he declares. “The older you get in this business, the more you realize you can’t provide the answers all the time. Sometimes I just say what the problems are. Like right now, it’s so complex, there isn’t anybody alive who knows exactly what we’re headed into.”

The current stock market provides a good example. For months Russell has been frankly nervous about it; for months he’s been saying it looks like Dow’s classic “third stage” of a bull market, the stage just before a collapse. So he’s been urging his readers to sell their stocks. He’s urging them to buy gold. Yet as of early this week, his Dow Theory indicators still had not shown the onset of a bear market, and Russell has acknowledged that the Dow Jones Industrials could climb from the 2200 range to 3000. Maybe to 3500. He says he hopes that will happen. He just doesn’t want to bet on it. “It does not look good.”

He says he hopes the current bull market is a precursor to a global boom. Russell has heard inspirational scenarios, and in December he outlined one for his readers: Stunning breakthroughs in computer technology make natural resources less important. Low American taxes attract the best brains in the world, as well as entrepreneurs and investors. That pressure forces other countries to cut their taxes too, and world productivity soars. It’s all “certainly plausible,” Russell declared in that issue.

But more commonly in recent months, he’s offered his readers grimmer fare. Last October he dabbled in science fiction, with a look at a 1995 reunion of today’s stock market gurus (himself included), all reminiscing about what had precipitated the Great Disaster. In November he offered a list of seven nightmarish financial disasters. One day recently, sitting in his living room, Russell continued on the same bleak note. “The country is basically sort of bankrupt now,” he said. “We’re a banana republic now. There’s just no easy way out, unfortunately. The whole country is over its head in debt. Up to now, the easy way has been to sell the debt [that is, to sell treasury bonds to foreign investors, principally Japanese]. But we’re coming to the end of the road there. Ultimately, you’ve got to take the pain. We’ve been putting it off for decades, by borrowing.” But we can’t put it off forever, he’s certain. The pain could take the form of “all-out inflation,” though Russell thinks a worldwide deflation/depression is more likely. “When this thing happens, everybody’s going to get hurt. The winner’s going to be the one that gets hurt the least.”

That’s one reason he thinks it's useless to talk about escaping the coming financial disaster. He revealed another reason in one of his issues last August. Russell reprinted a letter he had received on his birthday from Harry Schultz, editor of the International Harry Schultz Letter and confirmed prophet of doom. It was the kind of warning to send chills down anyone’s spine. “I’m coming to the opinion the whole scene will disintegrate before too long,” Shultz warned.

Deflation, depression, credit crash, banks closure, runaway AIDS plague, US exchange controls, Orwellian new $-bills, earthquakes (Calif flattened? RR moves to Monte Carlo?), SoAfr cut off by USSR so West is at mercy of USSR, BigBrother supremacy over the individual. I fear a gooey mess soon, where we all lose... A new Dark Age looms ...

Didn’t Russell want to join him (and several other newsletter writers) in Monte Carlo? Schultz implored. Russell then reprinted his answer.

  • Sure I'd like to join you. but it could only be for a few weeks. Then it would be back to the USA for me. Harry, I know you’ve keen saying for years that the US is heading for major trouble. And I’m not going to argue with you, because I’m afraid you could be ver\ right. And Monte Carlo sounds fabulous, and w hat’s more I’ve got the wherewithal now to pack up and move to Monte Carlo and well — to retire there. We’d probably have the time of our lives, but I can’t do it. And I’ll tell you why in a single sentence: my heart ... is rooted here in the US, Harry. If Monte Carlo was paradise itself (and it may well be) I still couldn’t leave. My roots are too deep, Harry, they go down into half the states of the union.

Russell then spent more than a singlespaced page telling Schultz (and Russell’s readers) about those roots, about the great-great-great-grandfather who served as an officer in George Washington’s army (“He was a Jew, which makes me a kind of a rare bird, a Jewish Son of the American Revolution”); about the great-great-grandfather killed in the Civil War; about his grand-father and his father and his hapless uncle Irving. He talked about his mother (a best-selling author who lives now in La Jolla), and about each of his ex-wives and all his children, and his current wife Faye, and Russell concluded, “I can't pack up and leave the US.... Harry, I know you probably disagree with me, but the US is where the “Freedom Buck” stops. If this country can’t survive one way or another, then I don’t know how I’m going to survive or my family is going to survive either.... I’m a football fan, and they don’t play football in Monte Carlo. That’s one thing that worries me about moving. The other is that my family has had too much blood spilled on American soil.... This is where my heart is,Harry, and if the ship is going down I guess I’m going to go with it. In the meantime, I’m writing my head off as usual, trying to do some good, and trying to get a few ideas across.” Although Russell didn’t write about it in that letter, there’s another reason he’s not about to retire — to Monte Carlo or elsewhere. He’s addicted to being a financial guru. He’s addicted to reading all those newspapers, to sifting through all that information, to trying to master the endlessly challenging puzzle of the market. Russell says he’s often wondered how many man-hours are applied to the stock market every week. “It’s unbelievable! Millions of hours, trying to figure this thing out. When a million people are out trying to dig into the same thing, it becomes very, very difficult. You’re really fighting the best minds in the country.” But it’s a fight with the power to hold a man, to make his pulse race even after thirty years.

You could see that one recent morning when Russell and his wife walked over to the E.F. Hutton office across Herschel Street from the Dow Theory Letters office. As usual, the Russells’ broker was out of town, but Faye casually took command of the computer terminal sitting on his desk. Younger than Russell’s eldest daughter, Faye is a quiet, studious-looking woman blessed with a luxuriant head of hair that varies in color from butter yellow to caramel brown. On that morning, she wore a red velour running suit and no make-up. She and Russell are nearly inseparable; she prepares all the charts for his newsletters, and Russell says she (unlike him) has an uncanny talent for stock market speculation.

She and Russell pay close attention to what's happening to the stock market every day, but on this particular morning, Faye had an added concern. She had bought “puts” on the Standard and Poor index of 500 stocks — a complex and risky speculation that had done well and would continue to do so as long as the stock market remained steady. When the market went down, she would lose money. So was the market going down? That day the Treasury Department was holding a particularly big bond sale. Would Japanese investors come through yet again and buy in quantity? If the Japanese hesitated, how high would interest rates climb? Russell and his wife looked edgy.

Methodically, automatically, Faye’s slender fingers tapped out the brief codes requesting one block of information after another: volume of trading, bond prices, most active stocks, interest rates, commodity futures. Each time she tapped the “return” key, columns of green figures scrolled onto the screen. “Jesus,” Russell muttered at one batch. “But look at this,” Faye commented at another. Both leaned toward the screen, rapt, totally engaged by the lighted symbols, straining to weigh them, to fit them together, to make them into a mental picture.

“So far nothing’s falling apart. That’s a good sign,” Russell judged at last. “What are you going to do?” he asked his wife and then visibly relaxed, adding, “I’m glad I’m not making the decision.”

She stared at the terminal screen, expressionless as a card player. And as she pondered, Russell seemed to take yet another mental step backward. Sometimes, he commented, he looks at how complicated the market has gotten, and it astounds him. He thinks of how stupefied his 1960s self would have been if he could have come forward to see this. But no one could have been that much of a seer.

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