While he learned a lot from his famous investor father, Ken Fisher has ploughed his own furrow very successfully.
Although he's the son of famous investor Philip Fisher, Ken Fisher has developed his own style, and built an impressive reputation in his own right.
Background
The youngest of Philip Fisher's three sons, Ken was born in 1950 in San Francisco, and studied forestry and economics at Humboldt State University. He then worked for his father for several years before founding the money management company, Fisher Investments, in 1979.
Forecasting
Fisher's main claim to fame is a relatively impressive track record when it comes to forecasting the market. According to CXO Advisory Group, which tracks the performance of market pundits, "Ken Fisher's forecasts for the overall U.S. stock market are right about 58% of the time, which is well above average".
Forbes magazine, for which he writes a long-running column, calculates that his public stock picks have outperformed the US stock market by about 5.7% annually over the past 11 years.
Being bearish, correctly, as markets slid in 2001 and 2002, he regained his bullishness too soon. He also called the subsequent bull market correctly, but has been accused of underestimating the extent of the current crisis. In particular, he has been criticised for being too relaxed about debt levels.
Investment Style
Fisher is first to point to the fact that being right only slightly more often than he is wrong is enough to put him in the top rank of market forecasters. Mistakes are part of the business, and the most important lesson for investors is learning how to engage with the 'great humiliator' that is the market. It's a personal challenge.
And it's a challenge that we're not designed to be good at. At our core, we are optimised for hunting and gathering, the these are the attributes we bring to investing, often 'collecting' the sorts of shares that appeal most to us. Fisher was an early proponent of behavioural finance -- trying to understand the mind games we play when investing.
In his book, The Only Three Questions That Count, he makes the case that all widely-known information is already comprehended in the share price, and that to beat the market we need to either know something the market doesn't, or simply take a different view on it. He sums it up in these three questions:
- What do you believe is actually false?
- What can you fathom, that other people find unfathomable?
- What is my brain doing to blindside me now?
A key part of his approach is to first take a view on the overall direction of the market, and the sectors and categories of shares that he expects to benefit. This is more important than selecting the right shares within those sectors.
When it comes to selecting individual companies, he likes the idea of finding great businesses that are going through temporary glitches in profitability, perhaps due to migrating from one generation of product to the next. In his book Super Stocks, he pioneered the use of the price-to-sales ratio (PSR) as a tool for identifying such companies. The price-to-research ratio (PRR) is another indicator of a business that is investing in its moat.
While his father famously held businesses for the very long term, Ken is looking for shorter-term situations that will correct themselves and be sold once profitability returns to normal. Diskette maker Verbatim Corporation was a good example of this in the early 1980s, rising fifteen-fold within a couple of years.
Current positions
In the current edition of Forbes, Fisher argues that the first year of a Democrat presidency is usually good for stocks, because the market initially expects them to be a disaster and discounts stocks accordingly, and is eventually pleasantly surprised when they are not. This is partly due to the rhetoric that a Democrat candidate has to use to get elected -- "Obama says lots of stupid, scary things". But eventually, they mellow out and business goes on as usual.
He's focusing at the moment on consumer discretionary, materials, energy and industrials, and in particular on the likes of Harley-Davidson and Mattel.
Although he manages assets of $45 billion, he still finds the time to read history books and indulge his interest in redwood trees.
More: Ken Fisher in his own words
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