Prolific blogger and fund manager Prieur Du Plessis profiles former Merrill Lynch strategist Richard Bernstein in his website, Investment Postcards.
We’ll quote the article interspersed with my comments in green (all bold highlights are mine).
``Respected Global Investment Strategist Richard Bernstein left Merrill Lynch this week after 20 years at the firm.
``Bernstein, who also wrote Navigate the Noise: Investing in the New Age of Media and Hype, was voted to the Institutional Investor All-America Research Team in each of the last 14 years.
``Writing his last Investment Strategy Update, Bernstein listed what he views as ten of the most important investment guidelines he has learned over the past 20 years. These guidelines are shared below.
1. Income is as important as capital gains. Because most investors ignore income opportunities, income may be more important than capital gains.
[my interpretation: in the stock market, dividends matter a great deal]
2. Most stock market indicators have never actually been tested. Most don’t work.
[my interpretation: “holy grail” investing is a mirage and a hokum.]
3. Most investors’ time horizons are much too short. Statistics indicate that day trading is largely based on luck.
[my interpretation: this is where the stock market becomes a personal casino. Combined with no.2 you don’t need fundamental or technical analysis when scalping or engaging in day trades. Over the short term, noise dominates signals. And when playing for luck, you can do the Burton Malkiel’s blindfolded monkey throwing darts approach]
4. Bull markets are made of risk aversion and undervalued assets. They are not made of cheering and a rush to buy.
[my interpretation: For the average stock market participants, this “cheering” and chasing prices during bull markets are very common. During bear markets, panic selling at the bottom and or blaming everyone else but themselves are familiar traits. Yet as Mr. Bernstein recommends, the opposite is required- buying on fear and selling on cheers. Nevertheless going against the crowd requires the aptitude of emotional intelligence.]
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.
[my interpretation: the present crash tells us that only gold and the US dollar managed to diverge from the generally tightly correlated assets.]
6. Balance sheets are generally more important than income or cash-flow statements.
[my interpretation: the disintegration of the major US investment banking institutions are vivid examples]
7. Investors should focus strongly on GAAP accounting and should pay little attention to “pro forma” or “unaudited” financial statements.
[my interpretation: mainstream analysts tend to utilize analytical methodologies that suits or conforms to their biases.]
8. Investors should be providers of scarce capital. Return on capital is typically highest where capital is scarce.
[my interpretation: the current environment can be construed as having scarce capital.]
9. Investors should research financial history as much as possible.
[my interpretation: people make the same mistakes through the ages. That’s why we should learn from history]
10. Leverage gives the illusion of wealth. Saving is wealth.
[my interpretation: AMEN!!!]
