The Seven Rules of Wall Street: Crash-Tested Investment Strategies That Beat the Market

03/02/2009 1:14 pm EST

Focus: STOCKS

Sam Stovall

Chief Investment Strategist, CFRA Research

Investor Alert: Before the ‘bull’ hype commences, save yourself money and time and read this book!

Investors have been beaten up by the last eight months of stunning market declines, with no escape from the constant media bombardment of just ‘how bad it is’.

Now, whispers are creeping into the media’s consciousness, of a possible ‘bottom’ to this market rout. We can surely hope so!

But when that great event actually does occur—if history serves as an example—a couple of things will happen very quickly:

  1. The bull market will most likely develop very quickly, with rapid gains
  2. They hypesters will come out of the woodwork with legions of ‘can’t miss’ systems to supposedly ‘protect’ you from the next downturn

The first event will be most welcome, but it’s the second occurrence that you will have to worry about, because the only folks making money off of these ‘systems’ will be the hypesters.

That’s why you should read Sam Stovall’s book—before the bull market ensues.

Why? Because there’s not much Mr. Stovall hasn’t seen or experienced, firsthand, on Wall Street. As the chief investment strategist at Standard & Poor’s, Mr. Stovall has made a career out of concentrated study on market statistics, twisting them every which way to glean the maximum data from them.

And now, he has applied his genius for detail to the seven most quoted ‘rules of Wall Street’. You’ve heard them all, including ‘As Goes January, so Goes the Year’, ‘Sell in May, and Go Away’, and ‘Let your Winners Ride, but Cut your Losers Short’.

Lest you think this is dry stuff, let me assure you that this book reads just like a conversation with Mr. Stovall—witty, humorous, but backed up by comprehensive research.

Mr. Stovall begins his book with this premise: You’re better off being invested at all times, as if you try to time the market (which no one really can), you are sure to miss out of the most profitable opportunities, as the beginnings of bull markets are ‘fast and furious’.

Using the reams of data provided by his company, Mr. Stovall sets out to refine these seven rules of thumb, back testing them to the nth degree, to see if they really work.

First, he gives his strategy a little twist. Not only does he want rules that outperform the benchmark, but he also insists that they consistently and frequently outperform, as a condition of success. Mr. Stovall analyzes all 130 industries, 10 sectors, and the 500 stocks that make up the S&P 500, carefully taking stock of the leaders and the laggards.

Mr. Stovall’s findings may surprise some, as well-worn adages have a way of getting around and becoming truth just because they are so popular. But Mr. Stovall’s research finds that each of these rules actually do pan out—obviously, some more successfully than others.

Next, devoting a chapter to each rule, he explains why he believes each rule works, and then offers exceptions and consideration of the endemic risks related to each rule.

But the real treat—and meat of this book—is Mr. Stovall’s specific instructions on how to build a winning portfolio, based on each rule.

And for investors who don’t want to deal with individual stocks, he demonstrates how you can profitably employ exchange traded funds to take advantage of most of the rules. Additionally, Mr. Stovall has something for everyone—longer-term investors, as well as traders—effectively constructing portfolios that offer higher returns, with lower risk.

Finally, Mr. Stovall ranks the rules, giving investors his best advice on which ones are the most profitable—most of the time.

Certainly, history doesn’t usually repeat itself exactly, but the takeaway from this book is—that over-time, these seven rules have worked very well, through bull and bear markets. And a couple of them are real standouts, which I don’t think you will want to discard.

Buy this book now.

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