An article this summer in Canadian Business by Jeff Sanford on the Burden of Truth referenced Bob Farell’s top ten market rules which have a a lot of bearing on supply management. Bob Farrell was the Chief Stock Market Analyst at Merrill Lynch for 25 years and knows a thing or two about the market.
- Markets tend to return to the mean over time.
So if you beat up your supplier when times are tough for them, don’t be surprised if they do the same when times get tough for you, which they eventually will.
- Excesses in one direction will lead to an opposite excess in the other direction.
Thus, a market surge for your product will likely be followed by a rapid market contraction. Make sure you’re not stock-piling inventory, because early warning signals may only come weeks in advance in today’s fast moving markets.
- There are no new eras — excesses are never permanent.
A rapid market expansion will always be followed by a rapid market contraction, and the longer the excess goes on, the worse the contraction will likely be.
- Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.
A miracle will not happen. You have to be ready to ride it out.
- The public buys the most at the top and the least at the bottom.
No matter how many price cuts you make, you won’t create a surge in demand or increase market size. So while you will have to be competitive to maintain your relative market share, don’t bankrupt yourself trying to serve a market that isn’t there.
- Fear and greed are stronger than long-term resolve.
If they weren’t, we wouldn’t be in this mess!
- Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names.
So don’t believe all the hogwash the big vendors are spewing about how good “consolidation” is as they buy up all the little guys and end support for the new, innovative, offerings the little guys were offering.
- Bear markets have three stages — sharp down, reflexive rebound and a drawn-out fundamental downtrend.
This says odds of a quick turnaround are not in your favour — so don’t bank on one.
- When all the experts and forecasts agree — something else is going to happen.
If markets were predictable, we’d all make money in the stock market all the time. But they’re not — and they’re least predictable when everyone seems to agree. So if everyone says gold is going up $50 an oz tomorrow, don’t bank on it.
- Bull markets are more fun than bear markets.