Bob Farrell was at one time considered the best strategist on Wall Street. Back in 1992, while at Merrill Lynch, he wrote the following rules based on “lessons learned.” They are as valid today as they were 21 years ago:
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 rising and falling markets usually go further than you think.
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-chips.
8. Bear markets have three stages.
9. When all the experts and forecasts agree – something else is going to happen.
10. Bull markets are more fun than bear markets.
[Special thanks to Jeffrey Saut of Raymond James Financial for the above list.]