Benner wrote Benner’s prophecies of future ups and downs at Prices after seeing his assets wiped out in the Panic of 1873. He identified an 11-year cycle in corn and hog prices, as well as a 27-year cycle in the price of pig iron.
There are a few reasons why the chart has been strangely accurate so far. It is based on the theory that solar cycles affect crop yields, affect agricultural supply, and cause rises and falls in commodity prices.
Rob Burgeman of asset manager RBC Brewin Dolphin says the chart also highlights the cyclical nature of stock markets, which he says are “ruled by the primitive emotions of fear and greed and how these sentiments contribute to short- and long-term volatility. of markets”.
However, investors should be careful before buying or selling their holdings based on the instructions of the nineteenth-century pig farmer, as not all of Benner’s prophecies have come true.
Jason Hollands of investment firm Bestinvest says: “While there appears to be an uncanny connection to trends in broader financial markets, it failed to predict the 2008 global financial crisis and was a year early in relation to the pandemic.”
The chart may have become less accurate over time than the driving forces of the world economy have shifted. In his book, Benner called pig iron the “monarch of business”.
A lot has changed since then, says Hollands. “I would say that since countries moved to fiat currencies in the late 20th century, the biggest driver of financial markets has been the ebb and flow in the money supply driven by central banks. We are seeing this happening right now as the world has moved quickly out of an era of ultra-low rates and money printing.
Investors should also probably avoid using a theory based on the solar cycle to try and predict stock markets. But there are other patterns that investors use when deciding whether to buy or sell, and some of them are quite reliable.
“These include the idea that you should avoid markets in the summer (‘sell in May, leave, come back on St. Leger’s Day’) and the often strong performance of markets in December (a phenomenon known as the Santa Rally) ‘ says Dutch.
In the case of ‘sell in May’, while returns have historically been more subdued during the summer months, long-term average returns are still positive during these months, so not a convincing enough pattern to dogmatically sell every year. The Santa Rally is more convincing. Over the past 50 years, the MSCI World Index has had a positive return 76 percent of the time in the month of December, which is far higher than any other month.
For Burgeman, there is a modern day oracle whose advice investors should follow rather than Benner’s.
“As so often, we should perhaps listen a little more to the Omaha sage, Warren Buffet, whose mantra is ‘be greedy when others are afraid, but afraid when they are greedy,'” he says.