Bob Farrell’s Illustrated 10-Investment Rules

Over the weekend, it was interesting to see the number of advisors/analysts quickly rushing to defend their “buy and hold” investing philosophies following the sharp decline on Friday. As I wrote this past weekend:

“The downfall of all investors is ultimately ‘greed’ and ‘fear.’

They don’t sell when markets are near peaks, nor do they buy market bottoms. However, this does not just apply to individuals but many advisors as well.

When I read articles from advisors/managers promoting ‘buy and forget’ strategies it is for one of three reasons. They either can’t, don’t want to, or don’t know how to manage portfolio risk. Therefore, the easy message is simply:

‘You just have to ride the market out. Long-term it will go up. But hey, let me charge you a fee for holding your stuff in an account.’

The reality is that markets do not return 6%, 8% or 10% annually, and spending years making up previous losses is not a way to successfully obtain retirement goals.

It is also worth pointing out that those promoting these ‘couch potato’ methodologies are generally out in full force near peaks of bull market cycles, and are rarely heard of near bear market bottoms. This is why, as I discussed in ‘Why You Still Suck At Investing,’ investors consistently underperform over long periods of time.”


When markets are at, or near, “record levels” those levels are records for a reason. Throughout history awe-inspiring bull markets have been followed by devastating bear markets. Like “yen and yang,” a bull cannot exist without its forever intertwined counterpart.

Despite the media, advisor and analysts rhetoric to the contrary, investors DO have the ability to manage the inherent risk in their portfolios.

Investors can capture returns and grow their “savings” versus just blindly hoping that history will not once again repeat itself. While I can’t tell you exactly when the second half of the full-market cycle will manifest itself, I can assure you it will and the negative impact to retirement goals, and the time lost, will be just as damaging.

One other question to ponder. While Wall Street tells you to “just hold on and ride the market out,” why are they managing risk, spending billions on trading platforms and algorithms, and in many instances betting against you?

With this in mind, I present Bob Farrell’s 10-Investment Rules. While these rules should be a staple for any investor who has put their hard earned “savings” at risk in the market, they are rarely heeded in the heat of bull market. Just as they are being ignored now.

Who is Bob Farrell?

Bob is a Wall Street veteran with over 50 years of experience in crafting his investing rules. Farrell obtained his master’s degree from Columbia Business School and started as a technical analyst at Merrill Lynch in 1957. Even though Farrell studied fundamental analysis under Gramm and Dodd, he turned to technical analysis after realizing there was more to stock prices than balance sheets and income statements. Farrell became a pioneer in sentiment studies and market psychology. His 10 rules on investing stem from personal experience with dull markets, bull markets, bear markets, crashes, and bubbles. In short, Farrell has seen it all and lived to tell about it.