Richard Bernstein’s lessons
1. Income is as important as capital gains. Because most investors ignore income opportunities, income may be more important than capital gains.
2. Most stock market indicators have never actually been tested. Most don’t work.
3. Most investors’ time horizons are much too short. Statistics indicate that day trading is largely based on luck.
4. Bull markets are made of risk aversion and undervalued assets. They are not made of cheering and a rush to buy.
5. Diversification doesn’t depend on the number of asset classes in a portfolio. Rather, it depends on the correlations between the asset classes in a portfolio.
6. Balance sheets are generally more important than income or cash-flow statements.
7. Investors should focus strongly on GAAP accounting, and should pay little attention to “pro forma” or “unaudited” financial statements.
8. Investors should be providers of scarce capital. Return on capital is typically highest where capital is scarce.
9. Investors should research financial history as much as possible.
10. Leverage gives the illusion of wealth. Saving is wealth.
David Rosenberg’s lessons
1. In order for an economic forecast to be relevant, it must be combined with a market call.
2. Never be a slave to the data - they are no substitutes for astute observation of the big picture.
3. The consensus rarely gets it right and almost always errs on the side of optimism - except at the bottom.
4. Fall in love with your partner, not your forecast.
5. No two cycles are ever the same.
6. Never hide behind your model.
7. Always seek out corroborating evidence.
8. Have respect for what the markets are telling you.
Bob Farrell’s lessons
1. Markets tend to return to the mean over time.
2. Excesses in one direction will lead to an excess in the other direction. (Kick, repeat and write out two trillion times - never realizing the extremes govt's will go to)
3. There are no new eras - excesses are never permanent.
4. Exponential rising and falling markets usually go further than you think.
5. The public buys the most at the top and the least at the bottom.
6. Fear and greed are stronger than long-term resolve.
7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chips.
8. Bear markets have three stages.
9. When all the experts and forecasts agree, something else is going to happen.
10. Bull markets are more fun than bear markets.
1. Income is as important as capital gains. Because most investors ignore income opportunities, income may be more important than capital gains.
2. Most stock market indicators have never actually been tested. Most don’t work.
3. Most investors’ time horizons are much too short. Statistics indicate that day trading is largely based on luck.
4. Bull markets are made of risk aversion and undervalued assets. They are not made of cheering and a rush to buy.
5. Diversification doesn’t depend on the number of asset classes in a portfolio. Rather, it depends on the correlations between the asset classes in a portfolio.
6. Balance sheets are generally more important than income or cash-flow statements.
7. Investors should focus strongly on GAAP accounting, and should pay little attention to “pro forma” or “unaudited” financial statements.
8. Investors should be providers of scarce capital. Return on capital is typically highest where capital is scarce.
9. Investors should research financial history as much as possible.
10. Leverage gives the illusion of wealth. Saving is wealth.
David Rosenberg’s lessons
1. In order for an economic forecast to be relevant, it must be combined with a market call.
2. Never be a slave to the data - they are no substitutes for astute observation of the big picture.
3. The consensus rarely gets it right and almost always errs on the side of optimism - except at the bottom.
4. Fall in love with your partner, not your forecast.
5. No two cycles are ever the same.
6. Never hide behind your model.
7. Always seek out corroborating evidence.
8. Have respect for what the markets are telling you.
Bob Farrell’s lessons
1. Markets tend to return to the mean over time.
2. Excesses in one direction will lead to an excess in the other direction. (Kick, repeat and write out two trillion times - never realizing the extremes govt's will go to)
3. There are no new eras - excesses are never permanent.
4. Exponential rising and falling markets usually go further than you think.
5. The public buys the most at the top and the least at the bottom.
6. Fear and greed are stronger than long-term resolve.
7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chips.
8. Bear markets have three stages.
9. When all the experts and forecasts agree, something else is going to happen.
10. Bull markets are more fun than bear markets.
Do you also sometimes feel that you should put blinkers and ear muffs on and ONLY look at price action. Knowing the fundamentals can sometimes be a distinct disadvantage as Markets are NOT rational, yes repeat NOT rational. Why not you may ask ? Quite simple - markets are driven by human beings. Where 99% of investors in stock markets are totally oblivious to economics and what drives share prices. If this is the case one should not rationalise share prices as they make no logical sense. Instead one should rather study human behaviour. If human beings are the ultimate drivers of shares prices and not a companies balance sheet or P/E or whatever other shyte investment advisors can come up with then focus instead on psychology. Yes - if you want to be a successful Investor study psychology, not economics, not how to analyze a companies balance sheet, no, .............psychology.
Lets contemplate the psychological state of the average investor (fondly referred to from here as AI) including portfolio managers. After having the BeJEEZus scared out of them late 2008 and early last year (no-one saw this ten ton track coming) all seems to be calm on the western frontier. The AI is now patting themselves on the back for hanging in there and murmuring to themselves the oft quoted phrase - "invest for the long run, Rome was not built in a day....." Now if only those poor Japanese investors which kinda seem to be leading the world today down the same path - did NOT take this to heart..... the Nikkei peeked 20 years ago on 29 December 1989
AI is patting themselves on the back blinded by mountain of shining fiat money and debt. Indigestion is the next stage of over-indulgence and we have only experienced a few hiccups to date. Sever heart-burn is about to set in. Get those Rennies ready you are going to need them.
Finding a Bear out there now would be quite a feat (have they been added to the endangered list?)- specially one with any capital left. (Yes I'm still standing - in case you are wondering) Optimism has returned, the VIX has dropped, the market has rallied and all is going swimmingly. Now as a Zimbabwean recently discovered the sea looks placid from above but below dangers are lurking...
Interesting chart on zero years - they typically are .............downers....
Good Trading
PS - I will look at SHP again soon - a pet favourite. Seems to have gone nowhere since listing it a a possible short. Naspers (NPN) is also looking awfully stretched - keep an eye on this one.
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