Bob Farrell wrote these 10 rules after spending more than 50 years on Wall Street. He is dead today but his rules still apply, even in the current bull market euphoria.
- Markets tend to return to the mean over time.
- Excesses in one direction will lead to an excess in the other direction
- There are no new eras — excesses are never permanent
- Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways
- The public buys the most at the top and the least at the bottom
- Fear and greed are stronger than long-term resolve
- Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names
- Bear markets have three stages — sharp down, reflexive rebound and a drawn-out fundamental downtrend
- When all the experts and forecasts agree — something else is going to happen
- Bull markets are more fun than bear markets
Hat tip to Lance Roberts at Real Investment Advice.