Ten Guidelines from Richard Bernstein on His Final Day at Merrill

by StockJockey

Wednesday, April 15, 2009 - 12:59 pm

Is Richard Bernstein the best strategist on the Street? Not in my book, but we will cut him some slack today - after all it is his last day at Merrill Lynch.

He is distilling his 20 years at Merrill into 10 investment guidelines:

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 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.

I don’t think consistently profitable daytraders will agree with Rich, but we wish him happy trails all the same.
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Comments:

Hmm....interesting perspectives from Mr. Bernstein. Some I find a tad odd, but maybe he has witnessed more than me in his 20 odd years on the job.

Posted by Keith Shepard on 04/15/2009 at 01:16 PM

There are very, very few day traders who make any money - and most of the ones that do aren’t so much day traders and quantitative specialists.

This is wonderful advice, which anyone new and old to the market would do well to read right now.

Posted by Daniel M. Harrison on 04/15/2009 at 01:45 PM

You have to question this guy if he thinks daytrading is luck and not skill. How could someone on wall street think that. Where has his head been all those years?

Perhaps he’s rationalizing because a market strategist, like himself, who’s goal is simply to beat the market a ‘little bit’ over long periods of time, has such a problem doing even that.

Posted by on 04/15/2009 at 04:20 PM

Hardly the sharpest knife in the drawer. Bernstein took over from Stanley Salvigsen, whose strategic calls were questionable and Bernstein held his position during the dark tech bubble. If he was so good, whose research was he using, certainly not Merrill’s. How soon we forget…

Posted by on 04/16/2009 at 11:08 AM

You guys are cracking me up, I had to work under Dick Hoffman (post Merrill) for a while, who started an alternative product called the “Stallion Fund”. I shit you not...he never really got it off the ground, but spent thousands of dollars on marketing materials.

I almost never got hired there in the first place, having let it slip that I admired Charlie Clough’s work, who Hoffman competed with internally.

Clough was good, have not heard much from him lately.

Posted by on 04/16/2009 at 09:34 PM