Buy the Rumor, Sell the Fact: 85 Maxims of Wall Street and What They Really Mean (Michael Maiello 2004-03)

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Synopsis

Today's Most Refreshingly Straightforward Guidebook to the Real Rules of Wall Street
"Buy the Dips" ... "Don't catch falling knives" ... "The trend is your friend" ...
These trading maxims—and dozens like them—are repeated so often, by everyone from stockbrokers and advisors to stock market pundits, that for many investors they are fact. But when it's your own money on the line, how can you know which slogans should be followed, which should be ignored, and how to tell the difference?
In Buy the Rumor, Sell the Fact, Forbes staff writer Michael Maiello takes an unbiased look at more than 75 of these "rules" to determine if they have value for investors in today's fast-changing markets—and, if so, what that value is. Before you place your next trade, let this engaging and easy-to-understand book show you how to:

• Translate vague and contradictory investment maxims into commonsense investing rules
• Understand and apply the basic mechanisms of the market to your investing
• Distinguish between advice that is valuable and advice that is dangerous

As an independent investor, you need to understand the everyday language of the markets before you can consistently profit from your investments. Buy the Rumor, Sell the Fact takes you inside that language to help you craft investment guidelines that apply to you, and only you, in your quest to make safe and sound investment decisions.

Table of Contents

Introduction ix

Part 1 Beliefs from the Street 1

No One Can Beat the Market 3
Money Is Made from Single Positions and Kept with Diversity 5
Don't Average Down on a Loser 9
Cut Your Losses and Let Your Profits Run 11
If Investments Are Keeping You Awake at Night, Sell Down to the Sleeping Point 13
Beware the Triple Witching Day 15
If You Wouldn't Buy a Stock at That Price, Sell It 17
Bull Markets Climb a Wall of Worry 19
Bear Markets Slide Down a Slope of Hope 21
You Can Time the Market 23
When Intel Sneezes, the Market Catches a Cold 27
The Trend Is Your Friend 29
The Stock Market Rises as the Bond Market Falls 31
Follow the Rule of 20 33
A Rising Tide Raises All Ships 35
A Random Walk on Wall Street 37
The Market Is Efficient 39
Don't Invest on the Advice of a Poor Man 41
The Perfect Portfolio Never Needs a Trade 43
A Paper Loss Is Not a Loss 45
The P/E Ratio Works for Stocks but Not for the Market 47
No Tree Grows to Heaven 49
Never Check Stock Prices on Friday; It Could Spoil the Weekend 51
Never Buy on Margin 53
Mutual Funds Are Safer Than Individual Stocks 55
The Markets Abhor Uncertainty 59
Invest Money When You Have It 61
If a Trend Cannot Continue, It Will Not Continue 65
How the Market Reacts to News Is More Important Than the News 67
Don't Overdiversify 69
The Dividend Law 71
You Can't Go Broke Taking a Profit 73
Buy the Whole Market 75
Buy the Dips 77
Buy the Rumor, Sell the Fact 79
Buy and Hold 81
Bulls and Bears Make Money, but Pigs Get Slaughtered 83
Buy When There Is Blood on the Street 85
Bear Markets Last About a Year 87


Part 2 Stock Picking 89

Follow a Few Stocks Well 91
Being a Good Company Doesn't Mean Being a Good Stock 93
Never Fall in Love with Horses or Stocks 95
As a Bull Market Begins to Peak, Sell the Stock That Has Gone Up the Most--It Will Drop the Fastest; Sell the Stock That Has Gone Up the Least--It Didn't Go Up, So It Must Go Down 99
Never Try to Catch a Falling Knife 101
Share Buybacks Are a Sign of Shareholder-Friendly Management 103
Never Hold On to a Loser Just to Collect the Dividends 105
Buy the Dogs of the Dow 107
Buy the Stock That Splits 109
Buy on Weakness, Sell on Strength 111
Avoid All Penny Stocks 113
Don't Short Small Stocks 115
Use a Stop-Loss When Shorting a Stock 117


Part 3 The Federal Reserve 119

Don't Fight the Fed 121
Trust in the Greenspan Put 123
Two Tumbles and a Jump 125
Three Steps and a Stumble 127


Part 4 The Smart Money Talks 129

Actively Managed Funds Outperform in Down Markets 131
Follow the Fund Managers 133
The Longer That Institutional Investors Hold a Stock, the Less Volatile It Will Be 135
Pay Attention to an Analyst's Price Targets 139
Follow the Smart Money 141
Economists Can Predict the Future 145


Part 5 It's That Time of Year 147

The January Effect 149
Take Profits on the First Trading Days of the Month 151
As January Goes, So Goes the Year 153
The First Week of Trading Determines the Year 155
Sell in May and Go Away 157
Take Profits the Day Before St. Patty's 159
Avoid the October Surprise 161
There's Always a Santa Claus Rally 163


Part 6 People Believe This Stuff? 165

The Super Bowl Theory 167
The Markets Fall When the Mets Win the World Series 169
The Market Falls When a Horse Wins the Triple Crown 171
The Cocktail Shrimp Theory: Big Shrimp Means Big Returns 173
Short Skirts: Higher Hemlines Mean a Higher Market 175


Part 7 The Economy and Politics 177

The Market Will Collapse When the Baby Boomers Retire 179
The Stock Market Is a Leading Economic Indicator 181
Tax Cuts End Recessions 183
All Wars Feed Bulls 185


Part 8 A Few Misunderstandings 187

Your Investments Are Insured 189
CDs Are Safe 191
You Should Take Advantage of Tax-Free Accounts 193
Sophisticated Investors Are in Hedge Funds 197
The SEC Keeps Average Investors Out of Risky Investments 199
The Higher the Risk, the Higher the Return 203
Index 205


Biography

Michael Maiello (New York, NY) is a senior reporter and writer for Forbes. A frequent guest on CNNfn's "Journalist's Roundtable" and CNN's "Money Weekend," Maiello also contributes to the San Francisco Chronicle, the Santa Fe Reporter, and the New York Times Book Review

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