Tomorrow will be my last day at Merrill Lynch. I want to sincerely thank my colleagues and clients for the opportunity to work with them. It is because of them that my 20 years at the firm have been so rewarding.
As a last report, here are what I view as 10 of the most important investment guidelines I’ve learned in my time at the firm:
1. Income is as important as are capital gains. Because most investors ignore income opportunities, income may be more important than are 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 are income or cashflow 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.
