Thursday, November 13, 2008

Bob Farrell's 10 Market Rules To Remember

Bob Farrell’s (Merrill Lynch chief market strategist from 1967-1992) 10 Market Rules to Remember (link):

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

Source: Dennis Gartman of "The Gartman Letter"

16 Comments:

At 11/13/2008 8:45 AM, Anonymous Lars said...

Looking foward to number 10.

 
At 11/13/2008 9:34 AM, Blogger Prof. Festus X. "White Shoes" Throckmorton said...

Reminds me of P.J. O'Rourke's 10 less-basic principles of economics, from "Eat the Rich." You really need to read the book and get his exposition of the points, but they're still pretty strong by themselves.

1. The market is never wrong.
2. So you die. Things still cost what they cost.
3. You can't get something for nothing
4. You can’t have everything
5. Break it and you bought it
6. Good is not as good as better
7. The past is past
8. Build it and they will come
9. Everybody gets paid
10. Everybody’s an expert

 
At 11/13/2008 11:01 AM, Anonymous Anonymous said...

Being young and having a job right now is a gold mine.

You don't make quite enough to be looked at for the axe, you don't have that many responsibilities (no kids yet) and stocks are on a 50% off SUPER SALE. I am seriously liking this market to be honest...

 
At 11/13/2008 11:28 AM, Anonymous Anonymous said...

The S&P 500 is going to 500,
GE currently trading at 14.8 is going to fall another 30+% to single digits. Perhaps before this is all said and done the US political system will collapse which would be somewhat well deserved.

 
At 11/13/2008 11:34 AM, Anonymous Anonymous said...

Bush! Bush! Bush! Bush! Bush!

 
At 11/13/2008 1:05 PM, Blogger Adam said...

I thought this list was interesting. When it comes to the psychology of trading (as well as other economic behavior), greed gets a lot of ink. However, what is not usually discussed is the concept of fear.

When economic actors are confident, the result seems to be stability. Yet, when uncertainty prevails, and the anxiety which follows, it appears that chaos follows.

Everyone will probably come to different conclusions from what I said, however it is why I came to agree more with the Austrian school more than any other. When the government gets involved it is almost always under the guise of bringing stability. What we end up with is a list of unintended consequences, and of course the markets get the blame, bringing the belief that more government action is necessary, and....

 
At 11/13/2008 2:00 PM, Anonymous Anonymous said...

"Prosperity was assisted, too, by ... stimulants to purchasing, each of which mortgaged the future but kept the factories roaring while it was being injected ... People were getting to consider it old-fashioned to limit their purchases to the amount of their cash balance; the thing to do was to 'exercise their credit' ... 15% of all retail sales were on an installment basis ...It was fun while it lasted."
Only Yesterday, an informal history of the 1920's, F.L.Allen (published 1931).

 
At 11/13/2008 3:50 PM, Blogger like such as said...

well said, adam.

I'm an amateur, but in my comparisons of different schools of econ thought, the Austrians always have seemed the most logical. At least, they seem to base their conclusions on obvious, relatively simple principles and build upon them, as opposed to other methods, like "observing the world and devising complicated theorems that may or may not correctly define the answer."

One austrian author compared that sort of methodology to "looking for one's car keys outside under the street lamp because 'the light is better.'"

 
At 11/13/2008 9:26 PM, Blogger Adam said...

Like such as, I'm also an amateur in the real sense. My BA was in Econ and my favorite subject (and it showed in my marks) was History of Economic Thought; a subject I really never lost interest in, although I haven't always had the time to read more.

The quote is too me a fairly accurate one, although I'd mostly limit it to 20th/21st century thought. While the different "schools" certainly had their differences, in my opinion the material written and taught before 1900 did take a more deductive approach.

 
At 11/13/2008 10:35 PM, Anonymous Anonymous said...

If you want a friend on Wall Street,

buy a dog.

 
At 11/13/2008 10:41 PM, Anonymous Anonymous said...

The secret to success is sincerity.

Once you can fake that, you've got it made.

 
At 11/13/2008 10:44 PM, Anonymous Anonymous said...

Youth is easily deceived because it is quick to Hope.

-Aristotle

 
At 11/13/2008 10:47 PM, Anonymous Anonymous said...

Where our knowledge is softest are where the most charlatans exist.

-Nassim Taleb

 
At 11/13/2008 10:48 PM, Anonymous Anonymous said...

As our forefathers demonstrated long ago, onerous taxes get your tea thrown overboard.

 
At 11/16/2008 1:37 AM, Anonymous Anonymous said...

I'm curious what others think of LaRouche's idea of "Fixed-Exchange-Rate" System (http://www.larouchepac.com/news/2008/11/12/if-we-dont-make-kind-reform-now.html).

I'm trying to think logically and with common sense.

Seems to me all this derivative, swap, insurance, futures bullshit is nothing but mechanisms to make a few people rich. Eliminating the current bankrupt monetary system of a trading/credit system for products and services between four major countires initially AND eliminating the federal reserve can start some serious healing and get some REAL economics going.

Any thoughts...?

 
At 11/16/2008 5:05 PM, Blogger Less Antman said...

I sent my own little list to my email newsletter subscribers at the end of September.

TIME FOR A FLIGHT TO QUALITY?

Bear markets occur every few years, and so do "end-of-the-world" crises. When panic starts, I have no idea when it will end. What I do know:

(1) The wealth of a society is in the goods and services produced, and not in the monetary system. Check the stores: they're still open, providing lots of goods and services, and owning shares of the world's most profitable businesses makes your wealth as safe as the continued provision of those goods and services (if they disappear, money is useless).

(2) SOMEBODY has to own stocks at all times: the so-called "flight to quality" actually represents some people panicking out of the true source of wealth and handing ownership of these sources at fire sale prices to other people in exchange for green pieces of paper with pictures of presidents on them that aren't guaranteed to be redeemable for anything. Someone once described a bear market as "that time period during which stocks are returned to their rightful owners."

(3) The much higher rewards of equities over the long term result primarily from the uncertainty of returns over the short term. Thank the volatility: it is your best friend in the end.

(4) Diversify, diversify, diversify. That was the lesson forgotten by the businesses that got in trouble in September 2008. Don't you forget it: own lots of businesses in lots of industries in lots of countries.

(5) Alternative investments that usually do well when stocks are doing poorly can buy a little piece of mind. I keep around 30% of my investment portfolio in commodity futures for that reason. But there is no way to eliminate risk: ultimately, it is a matter of deciding whether short-term volatility or long-term low returns are the greater risk.

(6) If you think you can time the market to only be in it when it is going up, heaven help you. I cannot.

(7) There are MUCH better hobbies than following the stock market. Find one.

 

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