Ten Market Rules: Bob Farrell

Bob was a research analyst at Merrill from 1957; Head of Research for nearly a decade from the mid-80s and regarded by most macro people as an old school legend.

  1. Markets tend to return to the mean over time. (If you go back in history, every market is mean reverting.)
  2. Excesses in one direction will lead to an opposite excess in the other.(Oil is the classic example)
  3. There are no new eras, excesses are never permanent.(Remember “peak oil” and the “new economy”)
  4. Exponentially rapidly rising and falling markets usually go further than you think, but they do not correct by going sideways. (Chinese equities and home prices!)
  5. The public buys the most at the top, the least at the bottom.(Emerging markets!)
  6. Fear and greed are stronger than long term resolve. (Markets bottom when the public throws in the towel)
  7. Markets are stronger when they are broad and weakest when they narrow to handful of blue-chip names.
  8. Bear markets have three stages: sharp down, reflexive rebound and a drawn out fundamental downtrend.
  9. When all experts and forecasts agree, something else is going to happen.
  10. Bull markets are more fun than bear markets

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