Bargain Hunters, Contrarians, Cycles and Waves

Contrarians and bargain hunters seek investment opportunities by departing from conventional thinking. They study the psychology of markets to exploit mistakes caused by crowd behavior (i.e. the herd instinct). A pure contrarian acts simply in opposition to everyone else; a second type questions all commonly accepted beliefs and trends, acting independently only if appropriate; a third type becomes contrarian accidentally, by following some preferred line of reasoning to its logical conclusions . Notable contrarians and bargain hunters have included Humphrey Neill, David Dreman, Richard Band, John Neff, and George Putnam. Market fluctuations have long attracted analysts who try to find predictive cycles and waves of market behavior. Welldocumented cycles include: the Kitchen cycle (inventories, 35 years); the Juglar Cycle (fixed investment patterns, 711 years); and Kuznets Cycle (building patterns, 1525 years). Other more controversial theories include: the Kondratyev Cycle (also called "the long economic cycle," about 54 years) in three stages of upswing, crisis, and depression. The Babsonchart of business barometers uses statistics and charts to model a 20year cycle in four stages: overexpansion, decline, depression, and improvement. The Dow Theory (based on work by Charles Dow, William Hamilton and Robert Rhea) postulated three simultaneous movements: (1) narrow, daily movements; (2) "short swings," over weeks or months; and (3) the "main movement," lasting at least three years. The Elliott Wave Theory postulates a 200year, eightwave cycle consisting of five waves up and three waves down, along with cycles within cycles.