10 Rules for Investing

When I entered the financial services industry in 1996, I just wanted to absorb as much information as possible.  One of the first pieces of information I came across was by Wall Street legend Bob Farrell, who was the Chief Market Analyst for Merrill Lynch.  Mr. Farrell worked for "Mother Merrill" from 1957-2002, and was one of the first to use "sentiment" analysis in his work.  Given the unusual times we find ourselves in, and the increasing market volatility, I thought it would be helpful to revisit Bob Farrell's "10 Rules for Investing", which have been shared throughout Wall Street firms for decades.  Enjoy!

1. Markets tend to return to the mean over time.

2. Excesses in one direction will lead to an opposite excess in the other direction.

3. There are no new eras - excesses are never permanent.

4. Exponentially rapid rising or falling markets usually go further than you think, but they do not correct by going sideways.

5. The public buys the most at the top and the least at the bottom.

6. Fear and greed are stronger than long-term resolve.

7. Markets are strongest when they are broad and weakest when they are narrow to a handful of blue-chip names.

8. Bear markets have 3 stages - sharp down, reflexive rebound, and a drawn-out fundamental downtrend.

9. When all the experts and forecasts agree, something else is going to happen.

10. Bull markets are more fun than bear markets.