Richard W. Schabacker's Gift to Technical Analysis

By Schade Jr, George A. | Financial History, Summer 2015 | Go to article overview

Richard W. Schabacker's Gift to Technical Analysis


Schade Jr, George A., Financial History


By the close of 1928, Richard W. Schabacker had concluded that failure in the stock market was largely "due to plain ignorance of market affairs." An intense observer of Wall Street, articulate financial writer and astute adviser, Schabacker devoted his short-lived career to educating investors and professionals on stock market operations. His knowledge of Wall Street was encyclopedic, his writing prolific. Always advocating prudence in investing, he left an influential legacy in the field of technical analysis.

The Education of a Writer

In his application to Princeton's graduate English department in 1923, Schabacker stated that his intended career was "either financial or literary writing." He had had a "number of financial and literary articles published" and had done financial writing for the Federal Reserve Bank of New York in his first job after college, as well as some "literary writing as a free lance." In his hometown of Erie, Pennsylvania, he had been the editor of his high school student newspaper, an early indicator of his passion for writing. He was also class president at Erie High School, a leadership position that foreshadowed his interest in politics.

In September 1917, 18-year-old Schabacker entered Princeton University. The following year, after the United States entered World War I, he enrolled in the Student Army Training Corps, a program similar to today's ROTC. However, he did not serve in the active military as the war ended.

Schabacker was a member of Whig Hall, the nation's oldest collegiate debating forum devoted to literary and political issues. He was an editor of Princeton's yearbook, Bric-a-Brac, an activity that fulfilled an affinity for humorous writing that he would later satisfy on the pages of Pudge and Life magazines under the pen name Richard S. Wallace.

In June 1921, Schabacker was awarded an A.B. in Economics. The degree from the Department of History and Politics was with high honors, as he ranked 22nd in his class of 212 graduates. Alumni would later "remember the sly intelligence of his humor, and his power of dispassionate observation of what went on around him - a power which was to make him one of the recognized observers and interpreters of trends in the business world."

That career began at the Federal Reserve Bank of New York, where Schabacker worked from 1921 to 1923. While working in the Reports Department, he constructed a stock market index of representative stocks that went back to 1872. He likely selected that year because in September 1871 the New York Stock Exchange had established a continuous market in stocks.

Schabacker linked his 1872- 1896 series to the original Dow Jones Industrial Average (DJIA) from 1897 to 1914, and then to the 1914 version of the DJIA after the Exchange reopened that year. He undertook this project because "there was no accurate index of American industrial stock prices dating back very far beyond the opening of the 20th century." He used his longer index as a comparison to historical interest rates and business activity.

Schabacker may have worked for a short time in 1923 at Standard Statistics Company, Inc. before he returned to Princeton in September to obtain a graduate degree in English. Pursuing a financial writing and literary career, Schabacker studied literary criticism, Greek/ Hellenistic philosophy, English literature and dramatic technique. The Department of Classics granted him a Master of Arts on June 17, 1924.

He then moved 100 miles west of Erie to Cleveland, Ohio, to write a financial column for the Cleveland Plain Dealer newspaper. But it would be his next position that would propel his career.

Forbes Financial Editor

On November 15, 1925, Forbes business magazine published Schabacker's article entitled "Good Stocks to Put in Christmas Stockings," in which he recommended suitable stocks to give relatives. Elderly relatives "should have safety of principal above all else," while the young "may welcome a small element of speculation. …

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