Tuesday, March 30, 2010

Bob Farrell on the Mountain

Bob Farrell's Top Ten Market Rules

Bob Farrell was the Chief Stock Market Analyst at Merrill Lynch for 25 years and retired in 1992. The list below has been reprinted and repeated so often because it captures the human element of investing.

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. (This time it's different)

4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways. (The market can remain irrational longer than you can remain solvent)

5. The public buys the most at the top and the least at the bottom. (buying sizzle, not steak)

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

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

8. Bear markets have three 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.