Farrell is considered a pioneer in technical analysis and outlined 10 stock market investment rules in a 1998 note towards the end of his career. He went unnoticed in the midst of the dot-com bubble, but slowly gained recognition as many of the rules he described came true when the stock market fell from 2001 to 2003. I would be remiss if I did not point out that we pointed out Farrell`s rules on the B3 some time ago. The article is here: www.blah3.com/article.php?story=20071208095413253. However, „no new eras” is poorly worded, if not completely false. We are constantly experiencing a gradual development towards new eras and paradigms: for example, the eighties ushered in an era in which a software company like Microsoft can have a market capitalization of several billions, an era in which Japanese automakers can surpass GM and Ford, and many other examples. When a new era becomes the status quo, we forget how different it was from what preceded it. Half the pleasure of investing is figuring out long-term sustainable trends that are only obvious with hindsight and betting on them. No one said that investing is easy. The stakes are high and there is so much to manage.
Whether you`re a beginner or someone who`s been watching the markets for a long time, it`s easy to get caught up in the fluctuations of market news, emotions, and the free market. But if you follow Bob Ferrell`s proven secrets, you can only come out a winner in the end. More than two decades later, Farrell`s 10 stock market rules are being passed on as investors go through a period of high inflation, rising interest rates and heightened economic uncertainty. Bear markets can be just as much fun as bull markets. It`s the expectation of winnings that can be exciting. As in the first two rules, markets always deviate from the average. If you use this logic now, you could be very profitable in the future. „You can`t change human nature, and Mr. Farrell`s rules seem as relevant today as they were when he retired from Merrill Lynch 20 years ago,” Bank of America`s Stephen Suttmeier said in a note earlier this week. The trend, even among the most successful investors, is to believe that when things move in their favor, profits are unlimited. This is simply not true, and nothing lasts forever, especially in the financial world. Whether you`re driving at market lows that represent buying opportunities, or they can reach new heights so you can make money selling, don`t count your chickens until they`ve all hatched.
After all, you may need to take a step at some point because, as the first two rules show, the markets are returning to the average. „Legend”, „Guru”, „Dean of Wall Street Research”. These are just some of the epithets that are invariably associated with the name Robert J. Farrell, Sr., who during his 50 years at Merrill Lynch has become the best-known and most prominent technical market analyst and strategist in the United States, compiling a long list of incredibly accurate calls. Full Disclosure: Many of these calls he has sent to the general investing public over the years through interviews with you at Barron`s. I counted more than 10 in a single 5-year piece in the late 1980s and early 1990s. Bob has been away from Merrill for about a decade and has deliberately disappeared from the limelight. But he is hardly retired; He still actively serves a selected institutional client through his own Farrell consulting partners. When I met Bob recently, he was rested and relaxed after returning from a short trip to Nantucket as my head turned and tried to absorb the crude oil boom amid the credit carnage. But as in the past, everything made perfect sense – albeit distinctly unpleasant – when Bob stopped speaking. Listen. Bob Farrell is a Wall Street veteran who draws on about 50 years of experience in creating his investment rules.
After earning a master`s degree from Columbia Business School, he began his career as a technical analyst at Merrill Lynch in 1957. Although Farrell studied fundamental analysis at Gramm and Dodd, he turned to technical analysis after realizing that stock prices were more than balance sheets and income statements. He became a pioneer in sentiment research and market psychology. His 10 investment rules come from decades of personal experience with boring markets, bull markets, bear markets, crashes and bubbles. In short, Bob Farrell has seen and experienced everything there is to say. Translation: There will be a hot group of stocks every few years, but speculative fads don`t last forever. In fact, over the past 100 years, we`ve seen speculative bubbles involving various groups of stocks. Cars, radio and electricity provided electricity in the roaring 20s.
The refined fifties drove the bull market in the early 70s. Biotechnology is bubbling every 10 years or so and there was the dot-com bubble in the late `90s. „This time it`s different” is perhaps the most dangerous phrase when investing. As Jesse Livermore says: nice post, good points. also with this: „on how investing in the 19th century was very different from what we are used to today” – I think we have to think about the fact that during this time there was still money in circulation. Today, while the USTreas is expected to increase rev. by offering advertising, on the tickets he prints for FedRes, to Xerox. Basic human emotions are perhaps the greatest enemy of successful investments. But whether you`re a long-term investor or a day trader, a disciplined approach to trading is the key to profit. You need to have a trading plan on each trade. You need to know exactly where you are a seller of your stock – up and down.
Like all Wall Street rules, Bob Farrell`s 10 rules are not meant to be considered hard and fast or set in stone. There are exceptions to each rule. Nevertheless, these rules will benefit you as a trader or as an investor by helping you look beyond the latest securities or your instinctive feelings. If you are mood conscious, traders may be prevented from selling near the ground and buying near the top, which often goes against our natural instincts. Human nature makes individual investors and traders often feel safer at the top of a market. At the same time, they often feel the most pessimistic or cautious at market lows. Awareness of these emotions and their possible consequences is the first step to overcoming their negative effects. Source:Ten Rules to Remember When Investing in the Stock MarketJonathan BurtonMarketWatch, 6:24 p.m. EDT June 11.com/farrellsrules Bob Farrell is a Wall Street veteran who draws on about 50 years of experience in creating his investment rules.
After earning a master`s degree from Columbia Business School, he began his career as a technical analyst at Merrill Lynch in 1957. These are Farrell`s 10 stock market rules that investors need to remember, with additional commentary from Suttmeier. PS, World Beta had a good contribution some time ago on how investing in the 19th century is very different from what we are used to today: mainly bonds, no stocks, mainly dividends and no capital gains, no stock premium, no investments in „risk-free” government bonds, no long-term inflation.