E. George Schaefer is most synonymous with Dow Theory and its modern application. However, E. George Schaefer was also known for his work in the selection and timing of gold and silver stocks. As a bit of background on E. George Schaefer, in 1960, he wrote a book titled How I Helped 10,000 Investors to Profit in Stocks.
The book was about Dow Theory and its application. According to Richard Russell:
“…Schaefer started his ‘Dow Theory Trader’ service in 1948. this analyst possesses a ‘feel’ for the market and an instinct for the big picture second to none. He is one of the very, very few men who fully comprehend the concept of the primary trend. A warning: if you have ever heard Schaefer speak, do not be fooled by his ‘hoosier-country boy’ style of delivery. For Schaefer has been way ahead of the city boys on Wall Street for a long time.
“Schaefer provided his readers with many important technical studies during the late 1940’s and early 1950’s, and he has always labeled himself a ‘modern Dow Theorist.’ Schaefer has combined many technical considerations with his reading of the Averages, and I have found his thinking along these lines to be sound.
“In my library is a copy of Schaefer’s June 18, 1949 report, in which he predicted a major new bull market. His reasoning was brilliant, and if he had never written anything else, he would rate a ‘superb’ on this one alone. Personally, I wish that Schaefer had continued with his earlier technical studies, but those were written when the technical approach (and, in fact, almost any approach) was rare, and it is possible that he is now a bit tired of the ‘teaching’ approach which was a feature of his earlier letters.”
Our personal favorite by E. George Schaefer was a Barron’s article dated June 22, 1959 titled “Final Bullish Upsurge In Many Stocks Just Starting?” This article stands as a lone beacon for how modern Dow Theorists can understand the distinction between a bull and bear market as part of the primary trend. We note that at the time, Richard Russell was of the view that the stock market was due for a bear market and called a bear market in 1961. Schaefer was sticking to his 1959 call and told investors to hold onto their positions which was rewarded with another +40% increase in the Dow Jones Industrial Average.
Schaefer and Gold Stocks
In spite of all the successes in his Dow Theory analysis, George Schaefer committed suicide by jumping from his 14th floor apartment on September 20, 1974. Few will ever know exactly what prompted this action on Schaefer’s part. However, at the time, New York Times contributor Robert Metz had the following to say about Schaefer’s passing:
“The tragic death this weekend of E. George Schaefer-the investment adviser who indicated to his clients that they should sell gold stocks in a Sept. 6 bulletin that appeared to represent an overnight change of heart after six years of recommending the issues-was reminiscent of Wall Street suicides that followed the stock market crash of 1929.
“Mr. Schaefer had said he was selling gold and silver mining shares out of his advisory letters’ theoretical accounts. That appeared to have been a major factor in massive selling of such issues and major losses for holders of gold issues on Monday September 9.
“Obviously stunned by the apparent cause and effect relationship, Mr. Schaefer failed to display his normally ebullient manner in a telephone interview with this reporter a few days after the selloff. He sounded crestfallen and distressed. His secretary had refused even to put him on the line for some minutes after the call reached him.
“ Prices of the gold and silver issues had fallen by at least a third from the pre-bulletin levels and in some cases much more than that.
“Mr. Schaefer was found dead early Friday morning below the balcony of his 14th floor luxury apartment in Indianapolis, Ind. Police said preliminary investigation indicate Mr. Schaefer, 66 years old, jumped.”
About Schaefer’s passing Richard Russell said the following, “…a market genius. He forgot more about the market than most analysts will ever learn or understand.”
If Metz’s assertion was correct, and we believe this is to be the case, the recommendation to sell gold stocks was what pushed Schaefer to suicide. We think that after calling for a strong rise in gold stocks as early as 1968, the change by Schaefer was too much for the “believers” in gold to accept. Below is the charting of gold and gold stocks from the time of Schaefer’s sell recommendation:
At the time of Schaefer’s September 6, 1974 recommendation to sell gold and silver stocks, as represented by the Barron’s Gold Mining Index, the decline was as much as –64.37%. Likewise, gold declined –33.58% during the same timeframe. Additionally, our Gold Stock Indicator, based on the Barron’s Gold Mining Index, was also giving a “sell” indication in late 1974 while offering a “buy” indication starting in August 1976.
It appears that the work of Schaefer stands in stark contrast to gold and gold stocks contemporaries. As an example, the New York Times said the following of noted gold bug James Dines of The Dines Letter:
"...James Dines, preacher of the gold gospel through his apocalyptic Dines Letter, is about to move to California, his business here sadly reduced."
Dines wasn’t the only newsletter writer forced to uproot from the east coast to the warmer climes of the west. Additionally, a majority of gold stock newsletter writers eventually went out of business. One could only wonder what else Schaefer had to offer society and investors about the direction of the stock market and gold stocks. However, it seems that forces were too strong for Schaefer to escape the pressures related to his own success.
Sources:
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Barron’s. December 5, 1960. page 31.
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Schaefer, E. George. “Final Bullish Upsurge In Many Stocks Just Starting?”. Barron’s. June 22, 1959. page 27.
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Russell, Richard. Dow Theory Letters. Issue Number 270. November 5, 1964. page 2.
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Metz, Robert. “Death of a Market Adviser Calls Forth Echoes of ‘29”. New York Times. September 23, 1974. page 55.
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Russell, Richard. Dow Theory Letters. Issue Number 610. September 27, 1974. page 7.
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Lee, John M. "The Economic Scene: Routing the Gold Bugs". New York Times. August 29, 1976. page 105.
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Grant, James. “Malefactor or Martyr?”. Barron’s. February 23, 1976. page 3.
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Russell, Richard. Dow Theory Letters. “Alden Rice Wells”. May 31, 1974. page 6.