Investment guru predicts full recovery by 2014

Daryl Guppy, the Australian investment guru, believes it could be only four years before the world economy achieves a full recovery.

The 55-year-old, who makes regular appearances as a pundit on CNBC's Asia Squawk Box and is famed for his trademark walrus moustache, recently was on one of his many visits to Beijing.

He said that he believes the world economy will have put the Great Crash of 2008 firmly behind it by 2013 or 2014.

"It takes a long time to recover after losing lots of money and dissipating generations of wealth. Although the market itself may appear to be making major gains at the moment, that growth is not evident in the non-stock market economy, " he said.

Guppy said the recovery this time will be quicker than with other financial calamities of the 20th century.

He said the Dow Jones Index did not again reach the highs of 1929, the year of the financial crash that led to the Great Depression, until 1954 -- a quarter of a century later.

Following "Black Monday" in 1987, when the world's stock markets went into free-fall, it was nearly a decade before NASDAQ began to hit new heights.

"Technology has had a significant effect on the speed of recoveries and the ease now with which capital can flow internationally to where it is needed, " Guppy said.

"In the old days, where you had dual-listed stocks on the London and Australian exchanges, it used to take four to five weeks for typical certificates to move between Melbourne and London. Now such processes are done in an instant," he said.

Guppy has just published a new book, The 36 Strategies of the Chinese for Financial Traders. It is the third of his 15 books to be translated into Chinese.

In the book, he applies the 36 Chinese political and military strategies derived from the famous text to trading in the modern environment.

Guppy said its purpose is to demonstrate, like the ancient work, that trading is not all about the blood of battle represented by the cut and thrust of daily trading, but the philosophical and psychological basis behind market activity.

"If you take a broader philosophical understanding of the market, it can help you recognize what is happening so you can develop better solutions," he said.

Guppy takes a particular interest in the Chinese markets and has been closely observing the Shanghai Composite Index, despite the exchange not being open to foreign investors.

He said he believes the current rally from its low last October of 1,664 points to 2,978 points on Oct 16 is far from a bear market rally He is confident that it will return to its 2007 level of 6,000 in the future.

"We are not going to get there today or the day after. I think also the speed of getting there is going to be steadier. And that means when it gets to that level, it is going to be more stable than last time," he noted.

Guppy is based in Darwin in the Northern Territories in Australia but spends several months a year in Beijing and Singapore.

He is founder and director of Guppytraders.com, an international financial market education and training organization.

By the charts

As well being a guest host on the CNBC Asia Squawk Box program, which provides live chart analysis of markets across the world, he also regularly appears on TV18 and Zee Business TV in India.

Guppy is what is known as a technical analyst, applying a "chartist" approach to analyzing markets.

This means he is more concerned about searching for trends in the graphs of markets and individual shares, rather than what causes them to go up and down.

"My basic assumption is that everyone in the markets knows a great deal more than I do. When people back their assumptions with money, my focus is on understanding that activity in the market, rather than understanding the reasons for that activity," Guppy said.

"If you look at charts you see certain patterns of behavior repeated, and it is up to me to take trading advantage of it."

Guppy does not have a conventional financial background and has never worked on a trading floor.

He studied politics and history at Le Trobe University in Victoria in Australia before becoming a teacher at a middle school for five years.

He then headed off to the Australian Outback, relocating to the Northern Territories.

"I wanted to search for gold in the Outback, shoot crocodiles and ride wild horses," he said.

What he ended up doing was operating heavy machinery and building roads while his wife, Marion, continued teaching.

"I saved up enough money to buy my own machine and created my own company doing road building contracts," he said.

Having saved A$2,000 (US$1,807), he decided to invest in the stock market. Since all he knew was mining, Guppy bought A$2,000 of shares in Australia's Mount Isa Mines.

"I bought at 70 cents and then I see they have gone up to 140 cents. That is 100 per cent profit. Of course, living in the Outback, the newspaper I get is a week old. I then discover they have gone down to 60 cents, and I feel very stupid," he said.

However, he soon saw patterns emerging. He realized if he could understand these cycles and make purchases at key turning points, he could produce a major return.

Within a year, and by also trading other stocks, he managed to turn A$2,000 into A$100,000 (US $90,327).

"I was not aware of charting or technical analysis at the time. I just had an Apple computer and a spread sheet, and I used to record all the price details and produce weekly charts," he said.

Market behavior

"I actually linked trading to tracking animals in the Outback. Kangaroos will always come and drink water at 5 pm, so if you want to eat kangaroo you have to be at that spot at that time. You have to understand the behavior of markets to make the kill at the right time," Guppy said.

Guppy began writing books, the first of which was Share Trading. He became wealthy through his trading activity and by being a best-selling author.

The Australian is interested in Chinese investment behavior, too.

"Chinese investors are more traders than long-term investors, which are greater in number in Western markets, " he said.

Guppy believes there are dangers for China when the Shanghai market is finally opened up.

"If the market is opened up to Westerners too quickly, it will become overwhelmed by people who have more experience and a higher level of skill, which will be to the detriment of China. Money will be sucked out of China, as it was 100 or 200 years ago," he said.

Guppy's focus is making major returns out of his investments.

However, some argue that whether you are a trend analyst or a value investor, the best way to make money in stock markets is to back a selection of shares and keep them for 20 years.

The Australian guru said that approach does not work.

"If you did that, you would go broke. If you had 20 shares, you would find that 80 percent of them would have de-listed or gone broke," Guppy said.

"You have only got to look at the constituents of the major indexes over that period. Only a fifth of the stocks have survived. The rest are new," he said.

Meanwhile, Guppy is confident the world has moved out of the recession, even though very slowly.

"Technical analysis shows us that the market moves four to six months ahead of the real economy," he said.

The market already told us we moved out of the recession about three months ago. It will be nice to get that confirmed, but we already know it," Guppy said.

(China Daily 10/19/2009 page12)