Real Estate Investor Magazine South Africa November 2016 | Page 36

The fact is, you will always get a contrary view on any
data release and news – that’s just how us humans beings
are.
But secondly, and more importantly, financial markets
are certainly not linear and if they were governed by any
Physical Laws of Motion, it would be to the Laws of
Non-Linear (not Linear) Motion.
Just imagine a pendulum, and you can readily see how
this more reflects how the markets move, as they swing
from one extreme to the other.
Now if you thought of a pendulum on a moving base,
you would start to get a bit closer.
And if you had a pendulum on a moving base where
the pendulum itself had a smaller pendulum hanging
on it…and that one had another still smaller pendulum
hanging off it…and so on, then you would start to get
more of the idea of how financial markets work.
But even then, it would still not be quite like that…
Yes, the markets are a lot more complex than an apple
falling onto Newton’s head!
But that doesn’t mean they are completely
unpredictable…
Because financial markets do abide by the Laws of
Nature – the Laws of Human Nature!
You see, it is not the news, but humans acting and
reacting to news and events and making financial
decisions that drive the market.

And these decisions almost always are:

• Emotional (we rationalize these decisions with logic
thereafter)
• Recurring (we make similar decisions in similar
circumstances)

We all tend to make decisions based on how
we are feeling at the time…

…and the result is that these patterns of mass
sentiment or social mood are reflected in the zigzag
patterns of the market
…as they move from one extreme of pessimism, fear
and despair
…to the other of optimism, complacency and euphoria
…which recur over and over again - in smaller and
larger degrees.
The beauty of this is that if we understand the Laws
of Nature that govern these actions (discovered by
Ralph Nelson Elliott in the 1930s), it provides some
predictability to this irrational behaviour.
And as a result, when others are puzzled because
the Rand should have been continuing its run weaker
or stronger (based on Newton’s Laws), by following the
laws of Elliott’s Wave Principle, you would have known
that the investor mood pendulum (mass sentiment) had
reached an extreme and was about to swing the other
way.
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NOVEMBER 2016 SA Real Estate Investor

As an illustration, did you find anyone that was Rand
positive in early February this year, when the Rand had
just hit close to 18.00 to the Dollar a few weeks earlier?
Not likely! Most were expecting R25, R30 and
higher…
Well, (despite my emotions telling me the same thing
as everyone else) my Elliott Wave analysis at that time
showed that the market (read Rand-negative sentiment)
had likely topped out (reached an extreme) and was
expected to take the Rand down to around 14.00, then
bounce before heading still lower.
Which is precisely what has happened – contrary to
all expectation!
But that negative view only confirm our conviction
that the pendulum had reach the end of its swing.

So what lessons can be taken away from this?

•Markets don’t move in linear directions but in waves of
sentiment.
• That we need to apply the applicable laws of Nature to
understand financial markets
• That when everyone you speak to is very bullish (or
else very bearish) about a market, it is time for the
market to turn.
• That we each need an objective view of where the
market is position, else we WILL be swayed by
our emotions – with (more often than not) negative
results!

RESOURCES
Dynamic Outcomes
www.reimag.co.za