Today’s show was a continuation of Jim sharing the new rules from his new book. Investors has to follow rules to make money and all this week he has been sharing ones that work for him with us. These aren’t about beating the market, they are so we can understand how big institutions work. Once again we were told there is no market, just a bunch of funds that control most of the money that goes into stocks, and these people that run funds think the same way. The rules shared today were:

• The Fed controls business cycles and the first rule discussed dealt with “resisting the business cycle.” When the economy is going strong, players should buy “dirty, smokestack stocks that make things like machinery, cars and minerals.” When weak, health care companies, food, drinks and consumer staples are the play. People shouldn’t fight the economy. If it stinks stay away from cyclical stocks and if its stronger stay out of consumer staples. UnitedHealth Group (UNH) was recommended by Jim not long ago due to the fundamentals, secular growth and Medicare drug benefit. UNH dropped regardless of these things as the economy was steaming and the economy was about owning cyclicals at the time. What he thought of the company didn’t matter is was all about the cycle.
• The next rule has to do with the stocks that analysts cover and the he told us that they are “never bullish enough on good stocks, and never bearish enough on bad stocks.” Following the Street’s lead can make money. Analysts are never bullish or bearish enough because they do not cover individual stocks but cover and entire sector. The move over the entire sector might be terrible for analysts, but for investors it is great. This indicator can make people money.
• “Do not be a snob.” In personal lives being a snob doesn’t matter but with investing if they are looking at a company like Neiman Marcus rather than Target (TGT) an this could mean missing money. The Street will always be late in picking up trends because everyone lives in an upper class bubble. Analysts covering the restaurant industry will not understand a casual dining play like Darden Restaurants (DRI) as they will Morton’s (MRT) or Ruth’s Chris Steakhouse (RUTH). However big players missed about a 50% gain with the big DRI move due to being snobs.
• “Heavy hype and heavy shorts on a stock means it is time to sell the stock.” Hype was called analyst recommendations, celebrity endorsements and much touted facts in the media. To find how much a company is shorted go to a big website and look up the stock. With both of these things going against a company makes them “dangerous.” It was called a war on two sides with analysts talking the stock up and the other side betting a lot of money that the stock will go down. People that short are well educated investors who have done their homework. This happened with NutriSystem (NTRI) and they had a problem with a distribution model that the shorts knew about well but was not emphasized.
• “Past performance is not indicative of future success.” Every investment is different and success should not make you “overconfident” or to “feel invincible.” One stock that has made you money should not influence your decisions in the future as you could lose big.