Dorsey: ETF Revolution Just Starting

December 18, 2012

The ETF is now at the center of financial markets, Dorsey Wright’s president says.

 

Tom Dorsey, president and founder of Dorsey Wright & Associates, can’t say enough positive things about ETFs. His business of point and figure technical analysis is now focused on ETFs, and their role in all that he does will only increase.

When IndexUniverse.com Managing Editor Olly Ludwig caught up with Dorsey on the sidelines of IndexUniverse’s Inside Trading ETFs conference last week at the New York Stock Exchange, Dorsey predicted that one of the four ETFs it created with Invesco PowerShares, the PowerShares DWA Technical Leaders Portfolio (NYSEArca: PDP), is likely to cross the $1 billion threshold sometime early next year.

That’s hardly a surprise to Dorsey, who considers the ETF the most important financial innovation in his 37-year career in the money management industry, and sees the development so far amounting to the first foot of a 26-mile marathon.

 

Ludwig: I want to talk with you about technical analysis, and how it was that you got into this particular piece of the financial markets and securities trading. Give me a little background.

Dorsey: Well, I go back to 1974 with Merrill Lynch Pierce Fenner and Smith, where I first started as a stock broker. After about five years there, I was offered an opportunity at Wheat First Securities to develop and manage its first option strategy department, which I did.

In so doing that is how I came across the method of point and figure technical analysis. And after running the department for nine years, I started Dorsey Wright & Associates in 1987. That was 25 years ago.

Ludwig: And how do you fit into the whole pantheon of technical analysis? I’m thinking of guys like John Murphy. He’s sort of written the tone, in some ways, no?

Dorsey: Well, he’s written the tone, but he does something different. Like in technical analysis, there’s everything from astrology to bar charts, to candlestick charts, Fibonacci retracements, wave cycles, everything you can think of. And point and figure charting is probably the oldest method of charting in America. And that’s the piece I ran across; I decided that was going to be my slice of Wall Street. So as far as point and figure technical analysis—myself and my company—we are that.

Ludwig: When you look at the arc of your career since you developed point and figure charting, made it your own and branded yourself as the person who did this, can you speak a bit to how the markets have changed? And I’m heading toward the ETF here. But I’m just trying to get a little background—the arc of how the securities markets have changed, and how that has informed what you do.

Dorsey: Well, regarding the way the securities markets have changed, the ETF is the most important product that Wall Street has come across in my 37 years in this business. The advent of listed options in 1974 that preceded me by a few months, was one of the most important things that happened on Wall Street. The next thing was cash management by Merrill Lynch. But the most important product is the exchange-traded fund.

 

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