Richard Bernstein: 10 guidelines learned in 20 years

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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.

2. Most stock market indicators have never actually been tested. Most don’t work.

3. Most investors’ time horizons are much too short. Statistics indicate that day trading is largely based on luck.

4. Bull markets are made of risk aversion and undervalued assets. They are not made of cheering and a rush to buy.

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.

6. Balance sheets are generally more important than income or cash-flow statements.

7. Investors should focus strongly on GAAP accounting and should pay little attention to “pro forma” or “unaudited” financial statements.

8. Investors should be providers of scarce capital. Return on capital is typically highest where capital is scarce.

9. Investors should research financial history as much as possible.

10. Leverage gives the illusion of wealth. Saving is wealth.

Hat tip: Alphen Asset Management, April 17, 2009.


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6 comments to Richard Bernstein: 10 guidelines learned in 20 years

  • Michael

    Quote : ” Statistics indicate that day trading is largely based on luck “.

    I disagree, being a daytrader and knowing about the advancements in quantitative and cycle modeling software.

    Anyone watching John Carter at trading Futures or the the people using Market Profile techniques such as or WindoTrader simply know that the days of buying and holding are over.

    Instead of giving exaggerated payouts to incompetent executives at large brokerage firms, I suggest spending more on software.

    That saves a lot of money and after all : saving is real wealth.

  • […] du Plessis has posted today ’10 Guidelines Learned in 20 Years’ from Richard Bernstein.  Bernstein retired from Merrill Lynch this past week after 20 years at the […]

  • Very good stuff. Thank you so much!

  • Lou O'Neill Jr.

    dear priuer–the real deal from someone beholden to no one…seemed extremely wise advice…one query, however…why is bernstein leaving merrill after all these years?…what’s the real reason he is moving on?…and pleeze…don’t tell me he wants to “spend more time with his family.”…that one is almost as good as gen. custor telling his men, “boys, those are FRIENDLY indians over there!!!.”…prieur–keep up the great work and all the best from rego park…your friend abd # 1 fan…Lou O’Neill…-30-

  • Lou O’Neill: I suspect Richard Bernstein and David Rosenberg (and many other Merrill’s staffers) were not ecstatic about Bank of America moving in.

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