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Close-up: Richard Russell

Wall Street veteran approaches 50 years of market analysis

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Dozens of cacti dot the yard in front of veteran market analyst Richard Russell's La Jolla home.

Russell collects them. "They're survivors," he said.

Maybe their steadfastness and resilience remind him of himself -- at 82, Russell has spent 50 years writing about the twists and turns of the stock market, staying true to the basic theories of Wall Street's original analysts while adapting to technology and the expanding economic world.

His "Dow Theory Letters," writings that contain his thoughts on recent market action, are sent to about 10,000 subscribers every three weeks. Since he started in 1958, he hasn't missed a single letter. He says it's the longest series of financial commentary continuously written by one person. Today, though, most attention is focused on his Web site, where almost every weekday he posts analysis of market news, stories about his family or memories from his service in World War II.

Richard Russell

Russell served as an Air Force bombardier. A black-and-white photograph framed on a bookshelf at his house shows a young, uniformed Russell posing with fellow soldiers next to a Jeep, war-torn Italy in the background. Models of planes he flew rest on coffee tables and shelves. With a laugh, he said the lessons he learned in war taught him "how to survive" in the world of Wall Street.

Surviving on Wall Street wasn't easy, though. Russell's uncle killed himself in the wake of the 1929 crash. His grandfather did the same in the 1907 recession.

But he wanted to understand why those devastating crashes happened. So, returning from the war, he got into the family business.

He didn't do too well at first, and lost money on the first stocks he bought, in the post-war auto company Kaiser-Frazer. He was determined to figure out where he had gone wrong.

"I was always fascinated," he said. "I've always just been obsessed with it. I'm kind of nutty I guess."

As he learned to read the ebbs and flows of Wall Street, things started turning around. In the mid-50s, he began sending his thoughts on the market to friends. Somehow, he says, an editor at Barron's Magazine got hold of those writings, began publishing articles by Russell, and "overnight," he had 300 subscribers. He left his job at a textile design company.

"I was in business," he said.

He would write about 30 articles for Barron's over the next few decades, and the "Dow Theory Letters" officially began as a mail subscription service in 1958. Subscribers have ranged from the Bank of China, to big-name brokers such as Goldman Sachs (NYSE: GS), to a priest in a leper colony in Africa.

Topics vary, but Russell's analyses almost always go back to the basic tenets of Dow Theory, the economic philosophies of Charles Dow and his followers. In an essay titled "The History of Dow Theory" on his Web site, Russell summarizes the theory as "buying great values and selling those values when they become overpriced."

Dow Theory describes the market as moving in overall upward and downward trends, with slight recessions in the opposite direction. Those trends come in three phases, as different types of investors buy and sell. Dow Theory also says averages should confirm each other, related industries rising and falling together.

These ideas address the market at its simplest level, but Russell says "it still works" in today's complicated world.

Dow Theory basics have led Russell to some big calls. He called the top of the 1949-1966 bull market. In 1974, when "everyone" was bearish, he saw the Transports didn't break to new lows and decided the market was headed back up, calling the bottom almost to the day.

He uses his own "Primary Trends Index," or PTI, which he developed in the early 1970s and still posts for subscribers every day. Reflecting Russell's bare-bones philosophy, the PTI analyzes deep undercurrents in the market, looking strictly at market action without any emotion or subjectivity.

"Wall Street goes in fads," he said. "They get one indicator and everyone starts using it. I wanted something outside the fad."

In his most-requested article, "Rich Man, Poor Man," Russell extols the virtues of compounding and includes a study that shows how somebody who invests early, but only for a few years, can end up with significantly more money than someone who invests later, but for many years. He also describes the difference in psychology between a wealthy investor and your everyday "little guy." The wealthy investor doesn't feel pressured to make money, and can wait for good values.

"If, from the beginning, the little guy had adopted a strict policy of never spending more than he made, if he had taken his extra savings and compounded it in intelligent, income-producing securities, then in due time he'd have money coming in daily, weekly, monthly, just like the rich man," Russell writes. "The little guy would have become a financial winner, instead of a pathetic loser."

Much of his writing has a philosophical tone with a financial backbone. An article about the role of hope in investing ("Any time you find yourself hoping in this business, the odds are that you are on the wrong path -- or that you did something stupid that should be corrected."), and another about the necessity of taking action ("In the business of investing or in the business of life, thinking is not going to do it for you. Thinking is just rehearsing. You must learn to act.") are some of his most popular.

His writings aren't "buy this," "sell that," said Bob Moriarty, who has been following Russell since the 1970s, and runs the precious metals Web site 321gold.com from the Cayman Islands.

"He's not just giving financial advice, per se," Moriarty said. "He's giving guidance."

Moriarty posts gold-centered articles by Russell about every other week, he said. His site attracts between 50,000 and 60,000 viewers each day, and of the 250 or so writers he uses, Russell is "by far" the most popular, he said.

"He's the most valuable financial writer I've ever read," Moriarty said. "It's just a real privilege to be able to post his stuff."

Moriarty said most financial writers come and go, but Russell's popularity has endured.

"He has to have hit a nerve somewhere," Moriarty said.

John Mauldin, a Dallas analyst and investment writer, said Russell's staying power comes from "wisdom" and "general humility."

"He does no marketing, it's all word of mouth." Mauldin said. "That's remarkable. There's nobody else in the world that does that."

Russell contributed a chapter to Mauldin's book, "Just One Thing," which compiles investment advice from experts. Russell is always a popular speaker at conferences Mauldin organizes, he said. He never brings notes with him, speaking off the top of his head.

"He's seen so much," Mauldin said. "He's been writing for almost 50 years, in all sorts of markets. Up markets, down markets ... People enjoy listening to someone who's seen so much."

Russell's messages have stayed the same, but the means he uses to get them across have changed drastically.

He moved to San Diego from New York in 1961. Stock market news was almost impossible to get on the West Coast. He listened to the radio for the day's market numbers, because Monday's Wall Street Journal wouldn't reach California until Friday.

Today, technology helps bridge the distance between New York and La Jolla. International market prices rise and fall as he watches on computer screens from home or his La Jolla office. The Wall Street Journal is on his doorstep along with seven other papers every morning.

But Russell gets up at 3:30 every morning, ready for the markets to open on the East Coast. He's grateful his wife, Faye, is also an early riser, and says he likes the schedule.

"At 1 o'clock it's over," he said. "In New York, your afternoon is gone."

The computers bring challenges, though, and moving online 10 years ago was hard, he said. Since many of his older subscribers don't have Internet access, he continues to mail out letters compiling his recent writings.

A bigger challenge, though, is navigating the changing global economy. Trading is faster, more people are involved, and complications like derivatives make the "market game bigger, faster, more manipulative, more hazardous -- and far more deceptive than ever before," he writes on his Web site.

Russell was bearish from 1999 to 2007, often labeled a "perma-bear." But in April he switched sides when he saw the Dow Industrials, Transports and Utilities break to new highs in the same day.

The U.S. market is overbought, he said. The instability he sees is a big reason why he tells subscribers to invest in gold. Gold is "pure wealth," he says, while today's fiat currency is simply not worth anything. That bothers Russell as the country faces volatile times and intense competition from the East.

"The U.S. is not going to be the world leader 20 years from now," he said.

As China and India join the economic sphere, a third of the world is entering the market simultaneously, Russell said.

"Everybody's watching Shanghai now, which is going crazy," Russell said. "It's a huge force for business."

He'll keep watching the international markets as the Dow Theory Letters approach their 50th anniversary next year. Though he's considering scaling back, maybe writing three or four days a week instead of five, he said he'll never leave the markets entirely.

"I don't know what I'd do if I retired," he said. "I'd be bored to death."

After all, he jokes, his only other hobby is growing cacti. And the stock market's a little more interesting.

"You never have the ultimate answer," he said. "It's sort of like a crystal ball that nobody figures out. If you can figure out what the market's saying, you'd know the future."

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