Bob Farrell is a Wall Street veteran with over 50 years of experience in the investment business. He started as a technical analyst at Merrill Lynch in 1957. Bob’s ten investment rules have come from his decades of experience with all sorts of markets: dull, bull, bear, bubbles, and crashes. I thought I would share with you a short version of these Top Ten Rules to guide SMSF Trustees in reviewing their fund’s Investment Strategy
- Markets tend to return to the mean (average price) over time. Basically, this means that after a strong uptrend or downtrend, prices tend to move back toward the long-term average.
- Excesses in one direction will lead to an opposite excess in the other direction. Similar to above. It is not a coincidence that the ASX 300 has not reached the previous high 9 years after the pre-GFC top in 2008.
- There are no new eras—excesses are never permanent. “This time is different” are the four most dangerous words in investing.
- Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways. Corrections are as ugly as advances are exciting.
- The public buys the most at the top and the least at the bottom. Greed and fear drive the investing public far more than logic.
- Fear and greed are stronger than long-term resolve. This is a corollary to number 5. It is easy to say you are a long-term investor when your account is rising; much more difficult when you find yourself down 40%.
- Markets are strongest when they are broad and weakest when they narrow to a handful of blue chip names. A rally that has few stocks rising shows modest conviction and is more indicative of a market about to falter. Conversely, a rally that encompasses a broad number of stocks tends to be indicative of a “healthy” bull run.
- Bear markets have three stages—sharp down, reflexive rebound, and a drawn-out fundamental downtrend. Bear markets often start with a sharp, swift decline, then a sharp rebound, then the longer, grinding down of the third stage.
- When all the experts and forecasts agree, something else is going to happen. If everyone expects something “unexpected” to happen, the greater likelihood is it doesn’t. By definition, a “black swan” event is something few see coming, but after the fact, many say it should have been foreseen by everyone.
- Bull markets are more fun than bear markets. Psychologically, it is easy to invest in a bull market; after all the market confirms your “skill” and “brilliance” by going up. In a bear market, fear, panic, and even depression take over as nothing seems to go your way.
Recently Lance Robert’s website, realinvestmentadvice.com, reviewed Bob’s investment rules with great illustrated graphs to back up the veracity of those 10 investment rules. I would highly recommend a visit to that article for those needing further detail.
Mr. Farrell’s rules are not meant as hard and fast rules but something to keep in mind as you review you strategy and to ensure you do a fair critical review rather than just coasting along. There are always exceptions but these are good rules to keep in mind when reviewing your Self Managed Superannuation Fund investment strategy and positioning your portfolio for long-term investing success.
I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
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