Wednesday, January 13, 2010

Bob Farrell's 10 Market Rules to Remember

Bob Farrell was an acclaimed market strategist at Merrill Lynch from 1967-1992. Bob guided clients through the bull market of the late 1960's, followed by the bear markets of the mid-1970's, then the Great Bull Market which began in 1982.

Most of the good analysts in those days focused on the markets,and individual stocks, rather than trying to make huge macro bets on the economy. Consequently, they tended to have more success over time.

In any event, Mr. Farrell came up with these "Market Rules to Remember", which I believe still have relevance today. I thought they might be useful to post on my site.

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) Exponential rapidly 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 narrow to a handful of blue chip names.

8) Bear markets have three stages — sharp down — reflexive rebound —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