What Do You Think of Sam Stovall’s 7 Rules of Investing?

Sam Stovall (remember him?) has writtten a book on investing titled The Seven Rules of Wall Street: Crash-Tested Investment Strategies That Beat the Market* (remember Sam?). Kiplinger’s interviewed Sam about his book and asked him about his seven rules. I haven’t read the book so I’m not sure the reasoning behind some of Sam’s points.

1. Let winners ride, but cut losers short. This is much easier said than done. Sam’s thoughts seem to go along with what James O’Shaunessy says in his books.

2. As goes January, so goes the year. Is this really true?

3. Sell in May and then walk away. If everyone does this it ceases to work.

4. There’s no free lunch on Wall Street. I’m pretty sure this has do with fees.

5. There’s always a bull market someplace. That was harder to find in 2008 as every asset class seemed to be down last year.

6. Don’t get mad, get even. The Kiplinger interview asked him about this one and this was his response:

The S&P 500 is weighted by market capitalization, meaning the larger the company, the greater the impact. With the S&P equal-weighted 500 index, every stock is equal. A portfolio based on that index, which you can construct using exchange-traded funds, gives you the safety of holding stocks of larger companies, but with the higher returns of mid-cap and small-cap indexes.

Of course the flaw with the equal-weighted index (from what I’ve read) is that it’s more expensive to maintain since there are more transactions involved with rebalancing. I think it would be better to just add a small and midcap index to S&P 500 Index or just buy the total market index (yeah, it’s still cap-weighted but has exposure to the small and midcap classes).

7. Don’t fight the Fed. I’m going to check out the book to find out what he means by this one. The Kiplinger interview is too short in my opinion.

4 thoughts on “What Do You Think of Sam Stovall’s 7 Rules of Investing?”

  1. When looking for a bull market I try to look at where investment is taking place.

    China is dumping more than half a trillion dollars into its infrastructure.

    I expect to see agriculture, metals and minerals, shipping, and other like things to follow along. Maybe not now.. but eventually.

    I am not an expert, though, and would love to learn more about the market 🙂 Always have my ears open.

  2. I think he’s full of it. These sound like old-school maxims that are drilled into cold-calling stock brokers. I’ve stopped believing in anyone who claims to be able to time markets, pick sectors, and much less pick stocks. If they knew how to beat the market, they would be beating it and not sharing their ideas with anyone. Instead, they train themselves on snappy sales pitches, anecdotes, and one-liners and pretend to be experts so they can sell books or advice. Bull.

  3. Seems like a lot of generic cliches to me.

    Like you said about #3…if everyone does it, it ceases to work.

    My (uninformed) gut reaction is that even bad advice – like this – worked for a long time. A high tide raises all ships. But how many are sea worthy again after the low tide? Not this one, if you ask me.

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