Tuesday, December 31, 2013

When in doubt always refer back to Bob Farrell’s 10 Rules

I was reading ZH again, and I don't know why, but I finally today found out that it is Lance Roberts who comes up with the things to ponder about, which is a segment brought in by ZH which I quite enjoy. I have added them to my blog roll on the sidebar for all our future reading pleasure.

Anyway, while the article itself is pretty interesting, I think his recent 2014 market outlook report just 3 days ago is a very interesting read. Personally, I like his analysis, the way he structures his arguments, as well as his practical and slightly contrarian lean.

However, I think the biggest takeaway for me was what he put in the end of his report, which is just here below.

When in doubt always refer back to Bob Farrell’s 10 Rules:
(link goes to stock charts, which gives some great graphical examples)
  1. Markets tend to return to the mean over time
  2. Excesses in one direction will lead to an opposite excess in the other direction
  3. There are no new eras -- excesses are never permanent
  4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways
  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-chip names
  8. Bear markets have three stages -- sharp down, reflexive rebound and a drawn-out fundamental downtrend
  9. When all the experts and forecasts agree -- something else is going to happen
  10. Bull markets are more fun than bear markets

I especially like #4, #6 and his #7 is very similar to the $OEXA200R Chart that I also follow. I'm thinking of making this like my contrarian checklist.

I am going to do a bit of research about the interest rates and it being 4 standard deviations away from it's 50 day moving average. To me, that again feels like a strong contrarian buy for bonds! If my findings are supportive and conclusive, I think that it might signal me to load up on my investment grade bonds to meet my target allocation.

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