Intuition

In mid-November 2007, when the Dow Jones Industrial Index was above 13,000 and the S&P 500 Index was above 1,450, I attended the Trader’s Expo conference in Las Vegas, Nevada. The Trader’s Expo is the largest trading conference in the country; people come from all over the western United States to attend the conference. I had been invited to speak at the conference in conjunction with the publication of my first trading book, Way of the Turtle.

While I was at the conference, I was asked to do an interview with MoneyShow.com, which had set up a video recording studio in one of the conference rooms. The interviewer asked me what I thought of the markets over the previous several weeks. Normally, my standard response is that I don’t try to predict the markets. I had grown weary of giving advice and had found that specific advice is not generally useful to others when not considered in context.

This time was different. I decided to go out on a limb and advise that viewers be very cautious in their stock investments. I told them that I thought there was a higher than normal chance that the markets would go down a significant amount, that we were coming off a long period of steady gains, and that there was a good chance we had seen the end. The timing was prescient. It turned out to be the beginning of the downturn that would see the market lose more than 50% of its value over the next 16 months.

You may think my instinct had told me that the market would soon decline. This is only partially true. I thought the market was risky at that moment, for some very specific reasons that had nothing to do with my instinct as a trader. Where my intuition came in was in breaking my longstanding rule not to talk about what I thought might or might not happen. I just had a feeling that this time was different, that I should voice my concerns.

If you asked me, I could probably come up with some reasons I felt obliged to share my thoughts on the direction of the market, but these reasons would be somewhat contrived. The truth is, I didn’t really know why I spoke up; I had an intuition, a gut feeling, but one without a logical basis that I could readily articulate. In fact, the rational side of my brain was arguing for me to keep quiet because I knew that predicting market movement was a fool’s game. In retrospect, I hope that sounding this early warning benefited the traders who saw the video.