The Gould Rush to Sell

In Wall Street's division of labor, stock analysts try to forecast earnings of individual companies and pick those that might make good investments, while market analysts attempt to predict whether the market as a whole will rise or fall. To put it mildly, neither always succeeds. But Edson Beers Gould, at 74 the dean of market analysts, has been right often and spectacularly enough to be a market force in his own right. Two weeks ago, just after the Dow Jones industrial average rose smartly to 1,009, rumors began circulating that Gould was about to forecast a short-term decline of perhaps 100 points. The Dow promptly fell 33 points in the next three days, its biggest sell-off of the year; last week it rebounded twelve points. The earlier plunge started even before Gould's forecast was in the mail to his 2,500 clients, 200 of whom are institutional investors; he did advise them to sell up to a third of their holdings.

There was little doubt that Gould's forecast was responsible for the sell-off--which caused some embarrassment for Gould's employer, the New York firm of Anametrics, Inc., an investment advisory service. Clients who pay $500 annually for Gould's opinions were upset to receive them only after they had been acted on by other investors who read summaries of Gould's advice in the newspapers for a few cents. Anametrics Chairman Steven A. Greenberg hurriedly mailed letters to clients denying leaks to journalists and pointing out that Gould's advice should have come as no surprise anyway; he had been warning for a month that stock prices were due for a correction after their sharp and rapid rise since last December. Gould expects the drop to be brief, lasting perhaps six weeks and then giving way to a new rise to the 1,025-1,050 level.

The drop nonetheless illustrates the awesome reputation for calling market turns on the nose that Gould has built up over the past 20 years or so. He has been wrong a few times. He cheerily admits that in August 1971 he predicted a rise from the Dow's then level of 840; instead it fell to 790 by November. But other predictions have seemed almost omniscient. Only three trading days after the Dow hit its alltime high of 1,052 on Jan. 11, 1973, he advised clients to sell aggressively; those who did escaped one of the market's longest and deepest skids in history. "That was a beauty; that was easy," he told TIME Reporter-Researcher Sue Raffety. In December 1974, with the Dow near a twelve-year low, Gould declared the recession bear market over; clients who followed his advice were rewarded by a rise of more than 400 points in the next 16 months.

Tracking Patterns. How does he do it? A diminutive (5 ft. 2 in.), sprightly man, Gould is a technician who pays little attention to corporate earnings or the course of the economy. Using millions of figures dating back more than a century, he follows the lines that stock prices and trading volume trace on charts. He bolsters his chart readings with studies in physics (for the laws of motion), music (for rhythm) and crowd psychology. He has evolved his own gauges of the market, including the "speed-resistance line" (a measure of how far and fast prices have risen or fallen) and the "senti-meter" (a ratio of the prices of the 30 stocks in the Dow Jones average to the cash dividends that owners of those stocks receive).

One of Gould's creations is the "three-step rule." He explains that if after three interrupted rises the market does not go up and stay up, it is due for a drop. Reason: in Gould's view, human nature can rarely stand more than three tries at anything. If, for instance, a salesman rings three doorbells and fails to make a sale, he is likely to skip the fourth and take in a movie.

Gould has been honing his theories for more than 50 years. A graduate of Lehigh University, he worked briefly as an engineer in 1921 (while playing in a five-piece Dixieland band on the side) but concluded that opportunities for engineers were limited in the unsettled times after World War I and went into Wall Street instead. He scoffs today at the idea that his reputation is making his forecasts self-fulfilling prophecies. The market, he asserts, will follow cycles of its own whatever he says. In any case, he does not choose to become rich by following his own advice. "I don't trade in the market. It interferes with my work. It's a full-time job watching the tapes." But he does fairly well anyway. His salary at Anametrics is well in excess of $100,000.

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