The 10 Most Money Rules by Bob Works Like Magic Ever
Please follow these most innovative 10 Rules by Bob Farrel -the Dean at Merrill Lynch Research in your daily life like Bible, I am sure you will never lose money rather will always make money from Stocks.
Rule#1: Markets Tends to Return to the Mean Over Time:
We cannot ever think that of a single example where the market ever failed to revert back to the Mean. This is true for all the standards , test ratios such as P/E-Price to Earnings, P/B- Price to Book, and Dividend Yields .
Rules#2: Excess in One Direction will lead to an opposite excess in the other direction.
Good examples are of Oil prices in 1980s and 1990s well below the Mean in real terms. Due to that & due to excessive low prices & dearth of good growth in production the oil prices soared like any thing well above the Mean over 5 years. The stage is now set for an opposite direction towards lower prices. Housing in USA & UK are good examples.
Rule#3: There are no New Eras , excesses are never permanent.
At the peaks of a Bubble, "new ear" thinking and "permanent shortage" begins to drive market prices up. It is never different this time also. Merrill Lynch first warned of a bubble in Housing back in 2004, came true now.
Rule#4: Exponentially rapidly rising or falling markets usually go further that you can think of and they do not correct by going side way.
The key point is that when prices are moving sharply higher the market cannot accommodate the expansion of buyers. The prices shoots up. The same is true when the prices are falling sharp with market unable to accommodate all the sellers. So the prices overshoot down.
Rule#5: The Public Buys the Most at the Top, while Least at the Bottom (prices):
The reasoning here is that people invest because they hope that the prices will rise in value, and they sell because they fear that the price will continue to fall.
Rule#6: Fear and Greed are stronger than long term resolve.
In 1990s -Greed own over Common Sense. Many Investors knew all the rules, preserved their funds suddenly joined the dash for aggressive growth.
But examining the trends carefully can be very profitable. If fear has clearly overwhelmed long-term resolve, then it is time to turn to bullish. Expert like Rosenberg adds that early stage of bullish market characterized by Fear even the prices are improving.
Rule#7: Markets are Strongest when they are broad & Weakest when they are narrow to handle of the blue-chip names.
Look at the Oil price, then Intel, Microsoft, , Sun & Cisco .
Rule#8: Bear Markets have Three stages:
Rule#9: When All Experts and forecasts agree, something else is going to happen.
Prices hit their high at the point of maximum Bullishness and their low at the moment of Maximum Bearishness. It is absolutely difficult for the investor as a party pooper by everyone when prices are sky high, and he will be ignored when markets are sinking.
Rules#10: Bull Markets More Fun than Bear Markets.
The lesson for us as "sell side" market economists in dull the pain during bear market episode and control the infectious exuberance that accompanies bull market phases. The assessment right now is to underweight Equities and Overweight Good Quality Bonds.
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