Article

Good Vibrations

By Hannah Wallace August 31, 2008

Except for the small television set tuned to CNBC so Robert Morrow can watch the ticker streams, there are no telltale signs that the 75-year-old retired engineer is an acclaimed stock market prognosticator who has the ears of some of the world’s most recognizable bank executives and money market and hedge fund managers. In fact, sitting with Morrow and his wife, Sandra, in the small den of their Perico Island home, the conversation turns to typical retiree activities like leisurely walks, dining out, travel and attending the Sarasota Opera. Sandra even pulls out pictures of the grandchildren.

But Morrow is no typical Florida retiree. For some 30 years, he has been predicting the ups and downs of the market with such uncanny accuracy that he is a regular guest on financial news shows like PBS’s Nightly Business Report—his last appearance was July 18—and has been featured in publications like the Wall Street Journal, Fortune and Money magazine.

Morrow began making stock market predictions in 1976, shortly after he joined a Columbus, Ohio, investment club. He professes that he had little interest in the market at the time, and joined the club to placate his wife, who thought he needed to take more of an interest in business matters. An electrical engineer, Morrow thought his time would be better spent doing what he did best—developing patented technology based on a narrow area of mathematics known as vibration analysis.

Morrow has accumulated 38 international patents based on vibration analysis, with his latest being issued as recently as this year. It’s a system that uses vibration analysis to predict tornadoes, a subject that interests him because his grown children live in Atlanta where tornadoes are common and, until now, have been unpredictable. His technology has been used by Indianapolis 500 racers to balance their engines and tires, by dental drill manufacturers for balance and analysis and by General Electric Corporation to balance large power turbines.

After a short while in the investment club, Morrow began to realize that maybe there was some synergy to be found between investing and engineering. Leveraging his knowledge of vibration analysis, Morrow devised a method for detecting discrete mathematical patterns that can predict market behavior.

Here’s how he explains it.

"I use a mathematical method called Fourier analysis [see sidebar] which takes a complete pattern and breaks it down into its simpler elements, which would be sine waves, regular up and down waves. It's an old mathematical method and it is the bedrock for everything done in physics and electrical engineering," Morrow says. "I started looking at the behavior of the market in terms of cycles.”

Huh?

While Morrow’s theories and system might be beyond the ken of the average investor (or journalist), there is no arguing with its efficacy.

During the late 1970s, Morrow’s system was primarily used for the benefit of his investment club. Morrow’s acumen at picking high-tech stocks and, perhaps more importantly, in being able to time investments so his fellow clubbers knew just when to buy and when to sell, resulted in success that exceeded even his expectations. The stocks he picked rose an average of 64 percent a year until Morrow recommended selling them, at a huge profit for all.

Morrow began toying with longer predictions, and in 1980 went out on a limb to make one bold prediction public. “I called up then Fortune and Money managing editor Marshall Loeb and told him that the new bull market would begin in August 1982 with an S&P of 100, an amount that seems incredible now because it’s such a low number. He kind of said, ‘OK, we’ll follow up.’ He sort of dismissed my prediction. It turned out that I hit it right on the mark. He was impressed and sent a reporter out to interview me for a Money magazine piece.”

Morrow hit another home run in 1987 during an appearance on the Nightly Business Report. “I’ll never forget that day. It was a few months before the crash of ’87. I predicted the market peak exactly. I said it would occur in August of ’87 with a Dow Jones Industrial Average at 2,700. I was off a bit. It turned out to peak at 2,712 in August.”

Morrow is the first to say that his predictions are so far out in advance that at times they might need tweaking. "In July 2007, I was looking for a 19 percent decline in the S&P 500 Index. On Oct. 7, I predicted that the correction should be complete in the fourth quarter of 2007. Then I said no. I saw that these cycles were elongated, so I changed my forecast in early December to an expectation of a 19 percent decline in the first quarter of 2008. And that's when it occurred. March 10, 2008, at 18.7 percent. After that the correction extended to 19.99 percent.”

His current prediction for 2008? Early analysis, he says, is pointing to a new bull market. He predicts the DJIA will be 14,521 and the SPX will be 1,574 by the end of the year, a gain of 9.47 percent and 7.22 percent, respectively.

While Morrow declined to name his clients, citing confidentiality, he did say that they are large and certainly recognizable. He offered that his first big client was “a very large institution in New York.” His primary contact there has retired and is, according to Morrow, “an institution unto himself now. He’s that big. He’s been taking my services for 20 years.”

For a man whose claim to fame comes from the successful analysis of high-tech stocks, Morrow lives an incredibly low-tech existence. He uses a dial-up Internet service provider, and his office phone is an old streamline model that doesn’t sport any of the now common features like caller I.D. Although he has been approached numerous times to write a book, patent his stock analysis methodology and even sell his services on a wider scale, Morrow insists that a part-time gig is all he really wants or needs at this phase of his life. He enjoys the four-to-eight hours each week spent working up his weekly market forecast, which he offers to clients for a $10,000 annual fee, and relishes the time he spends with his wife and grandchildren. His greatest professional enjoyment comes from the one-on-one consulting he does with financial gurus around the world—interactions that he says are worth far more than fame or fortune.

“Sandra and I used to live on Tidy Island. There are a lot of retired people there, doctors and lawyers and business executives. They spend their time sitting on a bench in the park. Nobody asks their advice about anything,” Morrow explains. “With me, I regularly get calls from my clients. It’s quite invigorating when someone calls you from XYZ mutual fund and you’ve just seen him being interviewed on TV. It beats sitting around on a bench in the park.”

Secret Formula

Morrow explains (sort of) Fournier analysis.

“I determined that there are about 20 cycles in terms of the market, from maybe 20 years in duration to a week and a half, and each of these cycles has a very close analysis to amplitude, duration and phase. The amplitude is the size of the cycle, duration is the frequency of the cycle and the phases are the interrelatedness of all of these cycles. Imagine the amplitude being the Dow Jones Industrial Average or the S&P 500 Index. The duration would be the frequency of the cycle—it could be four years or one-and-half weeks—and then the phase, which is the relationship with the different cycles in terms of their positions. The last cycle was a bull market that lasted five years, one of the longest in duration. That's an amplitude that started in August 2002 and rose to a peak in March 2008 and then started to go down to a typical bear market cycle."

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