Respected Global Investment Strategist Richard Bernstein left Merrill Lynch this week after 20 years at the firm.

Bernstein, who also wrote Navigate the Noise: Investing in the New Age of Media and Hype, was voted to the Institutional Investor All-America Research Team in each of the last 14 years.

Writing his last Investment Strategy Update, Bernstein listed what he views as ten of the most important investment guidelines he has learned over the past 20 years. These guidelines are shared below.

1. Income is as important as capital gains. Because most investors ignore income opportunities, income may be more important than capital gains.

2. Most stock market indicators have never actually been tested. Most don’t work.

3. Most investors’ time horizons are much too short. Statistics indicate that day trading is largely based on luck.

4. Bull markets are made of risk aversion and undervalued assets. They are not made of cheering and a rush to buy.

5. Diversification doesn’t depend on the number of asset classes in a portfolio. Rather, it depends on the correlations between the asset classes in a portfolio.

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

7. Investors should focus strongly on GAAP accounting and should pay little attention to “pro forma” or “unaudited” financial statements.

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

9. Investors should research financial history as much as possible.

10. Leverage gives the illusion of wealth. Saving is wealth.

Hat tip: Alphen Asset Management, April 17, 2009.

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