Bob Farrell's ten rules for investing

1. Markets tend to return to the mean over time
When stocks go too far in one direction, they come back. Euphoria and pessimism can cloud people's head. It is easy to get caught up in the heat of the moment and lose perspective.

2. Excesses in one directioni will lead to an opposite excess in the other direction
Think of the market baseline as attached to a rubber string. Any action too far in one direction not only brings you back to the baseline, but lead to an overshoot in the opposite direction

3. There are no new eras--excess are never permanent
Whatever the latest hot sector is, it eventually overheats, mean reverts, and then overshoots. As the fever builds, a chorus of "this time it's different" will be heard, even if those exact words are never used. And of course, it ---Human Nature --- never is different

4. Exponential rapidly rising or falling markets usually go further than you think, but the do not correct by going sideways
Regardless of how hot a sector is, don't expect a plateau to work off the excesses. Profits are locked in by selling, and that invariably lead to a significant correction---eventually

5. The public buys the most at the top and least at the bottom
That's why contrarian-minded investors can make good money if they follow the sentiment indictors and have good timing

6. Fear and greed are strong than long-term resolve
Investors can be their own worst enemy, particularly when emotions take hold.

7. Markets are strongest when they are brad and weakest when they are narrow to a handful of blue-chip names
Hence, why breadth and volume are so important. Think of it as strength in numbers. Broad momentum is hart to stop, Farrel observes. Watch for when momentum channel into a small number of stocks ("Nifty 50" stocks)

8. Bear market have three stages---sharp down, reflexive rebound and a drawn-out fundamental downtrend

9. When all experts and forecasts agree---something else is going to happen
As Stoval, the S&P investment strategist, puts it: "if everybody is optimitics, who is left to buy? If everybody's pessimistic, who's left to sell?"
Going against the herd as Farrel repeatedly suggests can be very profitable, espcially for patient buyers who raise case from frothy markets and reinvest it when sentiment is darkest

10 Bul market are more fun than bear markets