STREET DOGS

Bob Farrell was considered one of the best strategists on Wall Street and his 10 Lessons Learned are as relevant today as they were in 1992:

1. Markets tend to return to the mean over time, meaning trends that get overextended in one direction or another tend to return to their long-term average.

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, meaning there will always be a hot group of stocks, but these fads don’t last forever.

4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways. Translation: a strong trend can extend for a long time. Or, as John Maynard Keynes put it: “The markets can stay irrational longer than you can stay solvent.” Once this trend ends, however, the correction tends to be sharp.

5. The public buys the most at the top, 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 bluechips. A rally on narrow breadth indicates limited participation and the potential for failure. A rally that lifts all boats indicates farreaching strength and increases the chances of further gains.

8. Bear markets have three stages — sharp down, reflexive rebound and a drawn-out fundamental downtrend, meaning bear markets often start with a sharp, swift decline, resulting in an oversold bounce that retraces a portion of that decline. After which the decline continues, but at a slower pace as the fundamentals deteriorate.

9. When the experts and forecasts agree something else is going to happen.

10. Bull markets are more fun than bear markets.