Wednesday, April 15, 2009

Rich Bernstein on Strategy

Rich Bernstein, Chief Investment Strategist at Merrill Lynch, decided that he did not want to join the good ship Bank of America. Yesterday he published his last report under the Merrill name, which was simply his 10 rules for investing.

Without reprinting the whole list, a couple are worth calling out as they are often overlooked.

Balance sheets are generally more important than are income or cash flow statements.

Especially in extremely bad times. Witness what happened to the financials last year. The dead ones were killed by the balance sheets. Valuing the beleaguered ones on normalized or historical earnings was impossible until the balance sheets were fixed.

Investors should be providers of scarce capital. Return on capital is typically highest where capital is scarce.

There is some irony here. Most private investors do not act as if they are providing capital - they act as though they are placing a wager. "Providing Capital" is a better mindset for protecting it.

Leverage gives the illusion of wealth. Saving is wealth.

'Nuff said.

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