Bob Farrell was chief strategist at Merrill Lynch for 25 years and a Wall Street legend. Bob developed ten maxims on the stock market that have become quite famous in investment circles and are good for investors to keep in mind – especially at market extremes. Here they are:
- Markets tend to return to the mean over time.
- Excesses in one direction will lead to an opposite excess in the other direction.
- There are no new eras — excesses are never permanent.
- Exponential rising and falling markets usually go further than you think.
- The public buys the most at the top and the least at the bottom.
- Fear and greed are stronger than long-term resolve.
- Markets are strongest when they are broad and weakest when they narrow.
- Bear markets have three stages: (1) sharp down, (2) reflexive rebound and (3) a drawn-out fundamental downtrend
- When all the experts and forecasts agree, something else is going to happen (this is my favorite).
- Bull markets are more fun than bear markets.
Here’s an article fleshing out these maxims in more detail: https://www.investopedia.com/articles/fundamental-analysis/09/market-investor-axioms.asp