The Great Cycle

Padraig Harrington’s, emotional and dramatic victory in The British Open at Carnoustie understandably brought back memories, particularly in Ireland, of the last, and only other, Irish victory in The British Open or any of the other three majors. It was exactly sixty years earlier, in 1947, that thirty five year old Irish man Fred Daly, one of the leading British golfers of his day, won the great championship. On the final day he went out in the third to last group set a score and was then able to sit back and see what the leaders would do. In the end he won by one stroke from American Frank Stranahan and R W Horne. Fascinatingly there is more than just their being Irish that connects these two great champions and their Open victories over six decades. Harrington too was already perhaps the leading British player of his day, he was also thirty five and also went out in the third to last group. He had also just won, what perhaps was, his most coveted title apart from a major, The Irish Open, leading up to the championship, Daly was the Irish champion in 1946.

All of this is nothing more than entertaining coincidence, however, in investing, it is remarkable how often sixty years has proved to be of far more importance than mere coincidence.

Many of history’s most successful stock market traders have based at least some of their success upon the careful application of cyclical analysis, the recognition that certain characteristics, or behaviours, in markets do repeat over time. It’s never an exact repetition obviously, and a substantial element of intuition or feel is also involved, but a handful of individuals throughout history have achieved almost mystical status and success.

The most well known, and with the best documented track record, was probably William Delbert Gann, generally known as W D Gann. In the early part of the last century Gann invested many years studying cycles in stock and commodity markets and reputedly accumulated a fortune of $50 million, a massive sum in those days. His success attracted an understandable degree of attention and fame, in several monitored studies he achieved incredible success. In October of 1909, monitored by witnesses, he made 286 trades, 264 of which were profitable, and his initial capital grew more than 1000%.

As a result of his study of cycles Gann seemed able to forecast short term market moves years ahead of time. His most famous call was for the great bull market of the 1920’s to end on September 3rd 1929 and to be followed by a crash; a most uncannily accurate prediction. Intriguingly, given the sixty year parallels in the recent Open, Gann attributed most of the success behind that market call to his understanding of the sixty year cycle. In share markets he viewed this cycle as being of absolutely the utmost of importance and gave it the designation “Great Cycle”.

Why such a cycle should or should not exist goes far beyond the realms of this column, however, it may pay, given this timely reminder from The Open, and the growing turmoil in some markets, to keep the possibility of this cycle existing at least in the back of one’s mind, a number of cycle analysts believe another Great Cycle may be peaking.

When Daly accepted the claret jug he commented that he was taking it back to Ireland and hoped that the change of air would help it. There was an understandable hope, even expectation, that this victory would be the catalyst for renewed success of Irish and British golf, unfortunately that was not to be, later that year the US Ryder Cup team almost whitewashed Great Britain and Ireland 11 – 1, and over the next thirty seven years there were to be only three more British victories in The Open and only one win and one half in the Ryder Cup.

Padraig’s victory, on the heels of the Ryder Cup having been hosted in Ireland has reignited enthusiasm for, and confidence in, both British and Irish golf. The Irish press exuded confidence in further success and have almost claimed next year’s Ryder Cup as a done deal. They have also installed their wonder boy, Rory McIlroy, who performed so admirably at Carnoustie in winning the Silver Medal, as one of the favourites to make the 2010 team at Celtic Manor in Wales, Skybet are only offering odds of 4 – 1,  even though he is still an amateur.

In golf, just as in investing, there is absolutely no reason why history should repeat itself, yet it is astounding how often it does. Hopefully for Padraig, the Irish, the European Ryder Cup team and the global share markets the parallel has finished or at least changed somehow, Daley never won another major, Padraig could quite possibly win several.

Kevin Armstrong

Chief Investment Officer ANZ National Bank Limited