Back to top

Image: Bigstock

3 Rules of Wealth for Bull Markets

Read MoreHide Full Article

Welcome back to Mind Over Money. I'm Kevin Cook, your field guide and story teller for the fascinating arena of behavioral economics.

Today I want to tell you about a special video I made for my subscribers at I titled it The 3 Rules of a Bull Market because, at the risk of over-simplifying, I wanted to crystallize my favorite principles, earned over 25 years of experience in good markets and bad, into lessons for all future bull markets.

My hope is that this video becomes a teaching tool for investors age 8 to 88 because its lessons will certainly stand the test of time in the next bull market, and the one after that too.

I also took half of this podcast to do a quasi review of a new book titled How Emotions Are Made: The Secret Life of the Brain by neuroscientist Lisa Feldman Barrett. More on that coming up.

When I talk to investors about the stock market this year, I still hear all the reasons that it's time to be cautious and the end is near.

But all my experience tells me differently. And while I have often thought this year that the market must be in its 6th or 7th inning, I have few fundamental reasons to believe that it couldn't keep making new highs for another two to three years.

So as I look back at the portfolios and the body of content I've created over the years to help investors profit, I wondered if I could simplify the message even further.

I often prefer not to over-simplify, leaning instead toward parsing out the complexities and nuances of economic matters.

But my work does have the same persistent themes. And so I realized, I could very easily crystallize them into 3 rules, and just ten words total.

In the video that accompanies this article, I go back over some of those messages from the past nine years of this bull market.

Then I summarize them all with my "3 Rules."

In the video, I also promise some useful links...

For a review of my latest fundamental update on BABA in case you missed it, here was my May ZU Strategy Session presentation. It's the last clip at minute 44:20...

May ZUSS: Top Stock Pick BABA at 44:20

Even then after awesome earnings and growth guidance, I reminded investors "If you can get in under $200, do it!"

The Moral of the Bull's Story

Got a minute?

I can think of no better way to quickly sum up the moral of this story than with a 1-minute video I recorded last year over at the CBOE. TV host Angela Miles asked me for my favorite "trader's tip" and I knew instantly that if I only had a minute to share with thousands of investors, I would choose this one core idea...

Follow the Smart Money

Finally, here was the message I offered on Tracey Ryniec's MarketEdge podcast back in January...

Cooker’s Melt-Up Recipe

Three ingredients for a "melt-up recipe" that investors can profit from.

1. Multiple Expansion Is Under Control: We may be in the 6th inning of this bull market, but multiple expansion isn’t yet as high as it was at the peak of other bull rallies like 1999-2000. There could still be plenty more upside to go.

2. Competition: There’s less stock and more investors. Additionally, Wall Street, unlike most retail investors, has to buy, but doesn’t have to sell.

3. No global macro worries: Whatever happened to the Eurozone crisis or China having a hard landing? For the first time in a decade, the global economy is in sync and growing at the same time with virtually no economic crises looming.

(end of excerpt from MarketEdge podcast)

Granted, the market headed into a 10% correction right after that on new global-macro worries about a trade war. But I also warned Zacks Ultimate members about the temporary "exuberance" in stocks 2 weeks prior.

So trade-war anxiety was a good, albeit surprising, antidote to wring out some excess bullishness. It's all part of the short-term swings of extreme optimism and pessimism in markets and very healthy overall.

And despite my long-term bullishness, I'm always ready with "dry powder" for a pullback to buy more of my favorite stocks.

The Chemistry and Culture of Emotion

Since I began the Mind Over Money podcast in November of 2016, I have frequently read from books by two different groups of scientists that form the foundation of my knowledge about human psychology in markets and beyond.

The first group is, of course, the behavioral theorists like Daniel Kahneman, Richard Thaler, and Dan Ariely who have helped create the field of behavioral economics, and its smaller niches in finance and trading.

The second group is composed of the neuroscientists like Antonio Damasio, John Ratey, and Candace Pert (discoverer of the opiate receptor) who have taught me much about the latest discoveries in the structure and function of our incredibly complex brains.

I just started reading the new book by Lisa Feldman Barrett, PhD, this week and I offer some initial reactions on the podcast. Dr. Barrett is a University Distinguished Professor of Psychology at Northeastern University, with appointments at Harvard Medical School and Massachusetts General Hospital.

In addition to the book How Emotions are Made: The Secret Life of the Brain, Dr. Barrett has published over 200 peer-reviewed, scientific papers appearing in Science, Nature Neuroscience, and other top journals in psychology and cognitive neuroscience, as well as six academic volumes published by Guilford Press. She has also given a popular TED talk.

Dr. Barrett received a National Institutes of Health Director’s Pioneer Award for her revolutionary research on emotion in the brain. These highly competitive, multimillion dollar awards are given to scientists of exceptional creativity who are expected to transform biomedical and behavioral research.

Despite my natural attraction and openness to any book about the brain, I actually had some initial reactions of resistance and confusion when I first started reading the introduction. Dr. Barrett's "point of attack" seemed to be on the cultural and even scientific misconceptions about how emotions are created.

After reading nearly two dozen books by other neuroscientists, I guess I assumed that much of the confusion had already been cleared up. But at 320 pages, with a 45-page bibliography and 40+ pages of notes, the book appears to offer several months of instruction and insight.

And so I am more than willing to give the expert the benefit of the doubt as I dive in this summer.

Be sure to check out the full podcast to hear me read a few paragraphs from the book and offer my amateur observations, whatever those are worth.

And don't forget to watch my video The 3 Rules of a Bull Market and to share it with friends and fellow investors you know, be they anywhere from 8 to 88!

Disclosure: I own shares of NVDA, LRCX, and BABA for the Zacks TAZR Trader portfolio.

Kevin Cook is a Senior Stock Strategist for Zacks Investment Research where he runs the TAZR Trader and Healthcare Innovators services. Click Follow Author above to receive his latest stock research and macro analysis.