A few years ago the gurus of behavioral finance and the psychology of investing made it very clear that Wall Street's clever con-men had been misleading us for 200 years, telling us we're "rational investors."

Folks that naïve spin may have worked back in the 19th and 20th centuries. But today, behavioral psychologists using fancy MRI technology are looking deep into the investor's brain and they see a highly "irrational investor."

OK, so we're all irrational. Big deal. You probably knew it all along and secretly didn't believe Wall Street's spin anyway, right? You probably knew in your gut, long before the brain-lookers said it, that Wall Street was just pulling your leg, pulling the wool over your eyes with some cute, misleading rules designed to take advantage of clients who only thought they were rational investors.

Well, here are 10 of those rules where it isn't knowing them that's the key to success but knowing when to break them.

1. Past performance is no guarantee of future results

Here's the most irrational of all rules and the one most often broken, even though the SEC wants it on all financial documents. Wall Street brokers slap this disclaimer everywhere, like it means something. No guarantee? Get serious. Even Barron's says while it isn't perfect past performance is the best tool we got. The trick is knowing when to ignore this rule.

2. Buy-and-hold -- compounding will do the rest

Jack Bogle once asked Warren Buffett: What's the best time to sell? Buffett said "Never, my favorite holding period is forever." So, if Buffett says so, it must be right? Never sell? The truth is few of America's 95 million investors honor this rule, not even Buffett. Portfolio managers turn over their entire portfolios every year. The rule's more a warning against active trading and encouragement to buy "quality" and hold.

3. Skilled managers beat the averages

The recent departure of Fidelity Magellan's boss Robert Stansky, after years of subpar performance by his fund, confirmed the irrationality of betting solely on a manager. Bad rule. Yes, about 15% of the managers do beat their indexes each year. But not the same 15% year after year. And only one manager has beaten the S&P 500 for a decade straight. Ergo, there's an 85% probability you're better off in passive index funds. But that's too rational. Instead, America's investors buy index funds just 8% of the time, proof we're irrational.

4. Forget stock picking, just diversify

Three guys won the Nobel Prize for inventing Modern Portfolio Theory. Today every money manager uses it. The rule is: Diversification's the key. Focus on the portfolio, not specific funds. So far, so good. But what if your fund is the one underperforming. Or you get a reliable tip from your barber or broker. MPT's great, but don't get obsessive about diversity. Picking matters.

5. Trust yourself

Get this: 80% of all investors claim they're "above average." Behavioral psychologists call this "optimism bias." Unfortunately, the majority who believed they were in fact beating the market actually finished anywhere from 5 percentage points to 15 points behind the S&P 500. Warning. Macho optimism may work in business negotiations, but optimism's irrational in the market! Go contrarian, act rational.

6. Market timing beats the averages

Just the opposite. Behavioral finance proves active trading lowers returns, as much as one-third. Transaction costs, commissions and taxes kill after-tax returns. Stick to an indexing strategy. Remember what Ameritrade founder Joe Ricketts told Fortune before his company went public: "The best thing, really, for an investor to do is buy a good company and hold it. Trading often and heavy is not something that makes you a lot of money." Amen!

7. Taking more risk creates higher returns

Wall Street has always told us that there's a direct correlation between risk and returns. Wrong. If you're well-diversified, you spread risks and enhance returns in the long run. But remember, diversification isn't just having lots of funds. Too often investors buy funds because they're what's on a limited 401(k) menu or in some magazine's "top 20" list or their broker says some new fund is hot. The truth is, most portfolios aren't diversified because we're highly irrational.

8. Buy on dips

During the 2000-2002 market downturn gurus often suggested the bottom was near and it was time to buy on dips. That's irrational. The rule may work in a rising market, but back then we lost $8 trillion following nonsense rules like this. If you seriously doubt all the overly-optimistic hype from Wall Street and Washington lately, forget buying on dips. Maybe sell and park your cash in money markets or inflation-indexed bonds till the next bear ends. Or use dollar-cost averaging and invest regularly, in dips or rallies.

9. Don't sweat the small stuff

You may need some of Dr. Richard Carlson's therapy to get to the roots of your irrational views about money. But this rule's bad news for investors. Studies prove that sweating small stuff (like expense ratios, turnover and commissions) matters a lot to your returns. In fact, sweating the small stuff will make a huge difference as your returns compound to retirement. So do something rational for once, break this rule: Buy only no-load, low-turnover, low-expense index funds, either ETFs or mutuals.

10. This time it's different

We heard this silly rule over and over during the 1990s bull. Sorry, but it's never different. Fundamentals matter: They did back then, they will tomorrow. Unfortunately, Wall Street and Washington keep spinning the same dangerous mantras, hoping to brainwash us into believing fictions like deficits don't matter, housing bubbles are mere froth and they know what's best for America, while they all break the rules of leadership.

The only rule you can never break!

Bottom line, we are irrational investors, living in an irrational world, in nation run by irrational leaders. The new psychology of investing says: Go contrarian, break all the rules, whether rational and irrational. But most of all, trust no one and none of the rules. There is only one rule you can never break: Think for yourself, that's the key to successful investing, and to successful living.