Nov

10

I like reading Kenneth Fisher’s columns in Forbes and Bloomberg Money (also available on Fisher’s own site), and I liked his books Super Stocks and Wall Street Waltz (I have not read his 100 Minds That Made the Market). In early December he is due out with a new book The Only Three Questions That Count (excerpt here). Apart from some inspiration for testing, it seems hilarious.

One of the reasons why I like his writing is that he dares to be different and stick his neck out. It also seems that he does a lot of testing of different hypotheses about the market. His works are full of ideas and inspiration for further testing. But — the million dollar question — I have no idea about what his returns have been like. And he has been in the business since 1972 with his own fund from I think the late 70s. He is currently managing $30 billion, so there has to be a long track record somewhere. Can anyone enlighten me?

Steve Ellison replies:

The Political Economist reviewed his book.

“First, what do you believe that is actually false? You may be preventing yourself from making smart investment moves because you’re blinded by falsehoods - ones that you get suckered into believing just because everyone else believes them.

Fisher comes up with some good examples of such falsehoods. You probably believe that stocks perform better starting at times when price/earnings multiples are low - and that they perform worse starting when multiples are high. Haven’t you heard that a million times? Isn’t it the core tenet of ‘value investing?’

According to Fisher’s research, it simply isn’t true. He’s crunched the numbers. Over history, it turns out to just not make much difference whether market multiples are high or low.”

“The second question is, what can I fathom that others find unfathomable? If you’re investing based on ideas that everyone else can grasp, those ideas are probably too stale to make you any money. Go for the things that you think are true - but that everyone else thinks are crazy.”

“The third question is, what the heck is my brain doing to blindside me now? Here Fisher walks us carefully through a minefield of cognitive dysfunctions that trick even smart investors into doing very dumb things.

Fisher points out that two emotions rule most investors’ souls — pride and regret.

We seek to build up our self-image by successful investing, rather then treating success as an end in itself. When we do succeed, we swell up with the pride of it and start believing we can do no wrong. At the same time, we will do nearly anything to avoid the shame of regret - that horrible sinking feeling we get when an investment goes bad, and you have to accept the fact that we really blew it.

Fisher says to turn these emotions inside out. Seek regret - that is, embrace your mistakes and learn from them. Shun pride — invest to make money, not to pump yourself up, and never, ever imagine you are invincible.”

J. T. Holley replies:

Vic and Laurel in Practical Speculations (chapter 2) did a wonderful job of illustrating and showing the reader with the added education of Scatter Plots the “Propaganda of Earnings”. A fish for a lifetime more importantly was the 7 techniques that came from the book “Fine Art of Propaganda”. Since reading the book the two that have come up the most in my observations is Plain-Folking and Bandwagoning. When I read an Ezine or online paper dealing with Finance those two seem to be the most frequent to me or the ones that I find easier to identify.


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