Posted May 2, 2011 at 1:25 am
Forbes: Ken, good to have you back.
Fisher: Thanks for having me.
Forbes: Well, one always wants somebody who does so well on the market. For example, just to set you up as a great guru, last year the S&P went up 12.8%. The stocks you recommended in your column in Forbes, which you can get at a very good price, went up 18%, and that was after a generous cut for commissions.
Fisher: Well, I appreciate that. I’ve been very lucky over the years in my Forbes columns. I have always been amazed by what good luck I’ve had, and I always think that the next year is going to be a disaster. And so far, I’ve had some years where I didn’t do as well as I should’ve. But I haven’t had disaster picks. I mean, I’ve had some individual ones that have been disasters, of course. But I’ve been very lucky in Forbes over the years. Forbes has been very good to me, too.
Forbes: Well, since you’ve been doing this, in only three years have you underperformed the S&P.
Fisher: Since the accounting began 15 years ago, that’s true. And then, not by a lot. But again, better to be lucky than smart. When I first started writing my column at Forbes — now almost 27 years ago — I never, ever would’ve envisioned that that now, 27 years later, I’d still be writing a column for Forbes. That would’ve been inconceivable to me.
Forbes: Well, you’re also still writing books. So, it may be luck, but you’ve learned how to put the luck into book form. This new one, Debunkery. A lot of clichés out there. You were fond of saying, “That the market is the great humiliator.”
Fisher: I am.
Forbes: And you’re also fond of saying, “Half the success of investing is seeing reality, and the other half is seeing it before others see the reality.” Explain.
Fisher: Well, one of my points is that we operate as people, regularly, not so much as individuals, but as a society, as if we were sort of a community of chimpanzees chittering at each other, and this community doesn’t really have much memory.
Forbes: Investor as ape.
Fisher: Exactly. And we ape each other quite a lot. And in the process of this, one of my views has been that we regularly have things that reoccur over and over again, but we tend to either be blind to them, or we forget them.
And that process, then, causes us to get very excited about things which you can tell, simply by looking at history, aren’t worthy of getting excited over. But we do it over and over again. And some of these are semi-predictable, and the market — which I, as you said, refer to as the great humiliator — exists in my mind (and I don’t mean this literally and seriously) as a sort of a near-living spiritual, almost all-powerful entity that exists for one purpose and one purpose only.
Which is to humiliate as many people as possible, for as many dollars as possible, for as long a time period as possible. And the great humiliator is really good at humiliating, and our job is to engage the great humiliator without ending up too humiliated by it. It wants to get your readers. It would prefer to get me, because I’m more visible than the average reader that you have. It would love to get you, but it would also love to get someone’s aged, demented aunt, because it wants them all.
And to actually engage the great humiliator without ending up too humiliated, we need to have every trick in our arsenal to avoid making critical mistakes. Understanding what are the mythologies that you can prove are false, and also understanding history well enough — which I know you’re a big history buff. That this happened, and this happened, and this happened and nothing bad happened.
We’re seeing that again now, so don’t be too afraid. But everybody is afraid. Every time I ever see fear of a false factor, I know that’s bullish. And so, the part about figuring out reality, and then what people will think about reality before they think it — some of these things are pretty seriously sort of cyclical, and after these kind of things, those things follow.
But people’s memories on these are so shallow that they don’t anticipate that. So, for example, the first third of a bull market is typically led by the stocks that got decimated the most in the back half of the bear market. The back, roughly two-thirds in time, of a bull market, is typically led by stocks that are perceived of as markedly higher quality than they were perceived of at the beginning of that two-thirds of the bull market.
The latter part of bull markets are typically led by stocks that are seen then as high quality, but the ones that do best are the ones that weren’t seen as such high quality before. So, knowing that, you learn as you move through time to position yourself from these kinds of stocks into those kinds of stocks. If you believe, as I do, that we’re kind of in a year, this year, that’s sort of like a pause before the next and last leg of the bull market that might be a couple more years, you want to move yourself into companies that you think can take on a luster of higher image.
Forbes: You have obviously studied markets and their ups and downs, peculiarities and cycles. And, as you note, a bull market doesn’t mean everything goes up. It has its own particularities.
Forbes: Another thing you look at, referring to the amnesia, is that — in terms of sentiment — that if everybody thinks something is so, it means it’s already reflected in the market. If everyone thinks the world is coming to an end, maybe it is, but it’s probably reflected in the market.
Forbes: A year ago you told me you were bullish, and by golly the markets went up, even though people were highly cautious. Explain today. You said, “Too many people are bulls, too many people are bears, so you’ve got to be very careful. You’ve got to pick very selectively.”
Fisher: One of the things that I started doing a long time ago — and I wrote about in my 2006 book, The Only Three Questions That Count, but I started writing about this in Forbes a very long time ago — is looking at….
Posted April 28, 2011 at 3:17 am
by Upside Trader
The title of this post is pathetic I know. I have never done a “how to” post in my life. People that do write how to stuff, usually know nothing about anything, they rehash buzzwords and buzz phrases ad nauseum. They probably did poorly in school or didn’t go at all ( which in the new era ain’t a bad idea anyway).
Wharton students are bankrupt before they say “I do” to an employer who isn’t hiring anyway. But Wharton dads have money, so probably not an issue.
But how do you really make money consistently in the market without massive frustration or quitting the game entirely? People do it, I do it. Not many do it, about eighty to ninety percent of traders lose money.
If I have bummed you out, or you have read this type of piece before ( most likely penned by a complete schmuck who never traded) then leave now.
Every “win” I have had is cloaked in a loss. I love winners, but obsess over the losers, I tend to learn from the mistakes. I fool around on Stocktwits all the time, my tweets need subtitles unless you know my humor.
But when it comes to making money in the market I will tear your esophagus out before I let you get in front of me on a trade. I am confident to the point that I feel like the all powerful OZ when I start my day trading.
Am I cocky? Fuck yes and Fuck no.
I ran money for people from Tangiers to Berlin to Saudi Arabia and all points in between when I ran my hedge fund. I started the fund with fifty cents and grew it to five hundred million bucks. My performance was off the hook. I know stocks. My investors got statements every month, they never busted my balls. When a punk from Wharton at a “fund of funds” (slowly going out of business) who wanted to give me money, who had a daddy that knew somebody started condescending, I politely asked him to leave.
I didn’t need or want his money. I didn’t need him to “suggest” changes to my style. Correction..I wanted the money just not his attitude. Bad business I guess, but I detest condescension from a silver spoon. I had just had my office explode on the 78th floor of the World trade Center a month before and I felt happy and safe in my Jersey City headquarters, so he could go play lacrosse.
They were fails and they are the the guys on twitter who’s bio says: “I’m an entrepreneur looking to change the world”. Ummm….sure you are.
So what do you do?
Posted April 26, 2011 at 2:41 am
by Vered DeLeeuw
I read the book “The Millionaire Next Door” ten years ago, in 2001, shortly after the painful dot-com bust. At the time, I had felt that I needed to reinforce my basic belief system about handling money, the value of money, and what it means to be “wealthy.”
Now, after the Great Recession and with a still-shaky economy and a high unemployment rate, the book is as relevant as ever – if not more so.
When I had first read the book, I really liked the basic premise, which contrasted a “wealthy lifestyle” with being truly wealthy. If I had to pick just one sentence from the book to sum it up, it would be this sentence: “Those who successfully build wealth believe that financial independence is more important than displaying high social status.”
The book helped me form and fine-tune my now strong conviction that “rich” does not mean, “surrounded by luxury,” because luxury can be financed with debt, and anything you finance with debt is not truly yours. I believe that “rich” means “free” – free from financial worries, free from the need to work full time whether you want to or not, free from being forced to report to a nasty boss.
It means being free to pursue your true passions, to give to the causes you care about, and to be in full control of this very short life you’ve got.
Consumerism stands in sharp contrast to financial freedom, because it enslaves you. Unless you were born into money, and assuming you belong to the middle class or the upper middle class, consumerism will keep you in whatever class you were born into, forever. You will not be able to accumulate wealth, because you will…
Posted April 25, 2011 at 10:37 pm
by Steve Alexander
MagicDiligence put out a post last week examining some of Magic Formula Investing inventor Joel Greenblatt’s interviews leading up to the release of his newest book, The Big Secret for the Small Investor. I was able to read the book over the weekend and wanted to post some of my thoughts concerning it.
Like The Little Book that Beats the Market, this is a short, easy read that can be completed easily in a single sitting. The target audience is the individual investor, although I believe it is helpful to have a little knowledge of business accounting before reading this one. Although The Little Book can be easily digested and understood by even the most novice investor, Big Secret assumes also that the reader has at least a basic understanding of valuation and return on capital principles.
Although I originally assumed that the book was designed as a promotional piece for Formula Investing’s “value weighted indexing” funds, that’s not really an accurate description (in fact, those funds are never mentioned specifically in the book).
Greenblatt starts off by going through a simplified example of how to value a business using discounted free cash flow (DFCF). He makes the point that, in order to follow Ben Graham’s advice to buy with a margin of safety, you first have to have a value for the business in the first place
Greenblatt then shows how small assumptions in a DFCF can make huge differences in the calculated value of a company. The point: It’s hard and often inaccurate to try and value a business in this manner.
Next, he briefly looks at some alternative valuation methods — comparing a firm’s valuation against historical norms and competitors, doing a sum-of-parts valuation, and looking at liquidation value. Although Greenblatt agrees that these can be valuable processes, he argues (correctly) that most individual investors don’t have the expertise, time or desire to work these out.
These guidelines established, the book then delves into solutions to the problem for individual investors. The first he advocates is something I call the “Buffett solution”: Stick only to companies that have stable cash flows and predictable growth, thus making it much easier to properly guess guidelines for the different valuation techniques.
Posted April 22, 2011 at 2:45 am
by Ben Baden
U.S. News & World Report
On Wednesday, widely followed investment guru Bill Gross filed to launch an exchange-traded fund version of his PIMCO Total Return Fund (symbol PTTAX), the world’s largest mutual fund.
Experts say this could be the start of something big.
“We’ve never really had a personality or a rock star behind an ETF,” says Tom Lydon, editor of ETFTrends.com. “This type of entry in the active-management ETF space is going to give it the push that we’ve all been waiting for.”
Late last year, ETF assets surpassed the $1 trillion mark, but most of that money is invested in more traditional, passive ETFs that primarily track indexes.
Active ETFs, which are run by managers who make buy and sell decisions, launched in 2009. Since then, many experts have cheered their growth. Although these ETFs look a lot like actively-managed mutual funds, there are a number of differences between active ETFs and actively-managed mutual funds, such as how they trade throughout the day and how trading is taxed.
Posted April 21, 2011 at 1:50 am
by Adrian Ash
Buying silver, instead of gold, looks to offer turbo-charged inflation protection. The current surge in silver prices worldwide might seem dramatic, but it’s more measured – so far, at least – than the true silver bubble that went Bang! in January 1980.
Even so, you might as well call this a record price. In real terms, as Matt Turner at Mitsubishi told me this week, one ounce of silver briefly rose above 40 of today’s US dollars per ounce in 1864, when the American Civil War neared its climax. In nominal dollars, the Hunt brothers’ multi-billion-dollar corner only saw it more highly priced on five trading days in January 1980. And while US investors buying silver are waiting for a new intra-day high, it’s already broken new ground against the British Pound and for most of the Eurozone, too.
Gold investors have long claimed the metal is “telling us” something. “First warning” of the looming financial crisis ahead, said Marc Faber in his Gloom, Boom & Doom Report of September ’07, was when “the price of gold more than doubled in nominal terms and against the Dow Jones Industrial Average [because of] ultra-expansionary US monetary policies with artificially low interest rates.”
In which case, and with global interest rates further below zero today after inflation than at any time since 1980, what in the hell is silver telling us now?
Posted April 20, 2011 at 2:08 pm
Synopsis: This article explains how life likes ‘involved energy.” Discretionary money and investment-capital doesn’t do anything or anybody any good if its sitting under somebody’s mattress.
Cash-preservation and slow-steady growth is one thing. And, investing money into viable enterprises is another. Both are needed to keep wealth on an upward trajectory.
by Barry Goss
An acquaintance of mine once remarked that he just wants to do what his uncle did: live frugally until he accumulates net assets of a cool million. But here’s the thing: his uncle actually had more. He went to his grave with $2 million, without enjoying life. C’mon… if you can’t take it with you, what good is it to not enjoy it while you can?
The Wealth Vault Approach: Look, here’s the deal… our Wealth Vault team completely understands that you can’t go around recklessly throwing money around, especially when it comes to high-yield investments. Yet, if you’re not willing to take risk, and put it to work through people, programs and systems that exist with the right intentions, you’ll never KNOW — as in, nothing ventured, nothing gained.
The secret is in understanding that, just like sports, when you play a game, you WILL lose sometimes… you just have to KNOW how to win more than you lose and be okay with that.
So many people live a life of sacrifice, deprivation, and EXTREME safety with their money, only to find out that they’ve never really lived in the first place.
It’s one thing to amass a big lump sum — either through business, inheritance, lottery, etc. — and PROTECT your new found money. It’s quite another to sacrifice lifestyle because your disposable income or savings is sitting still, stashed away under the mattress.
If (and when) you’re in the former situation, you can tap into resources that’ll help you hold onto it (keep it safe from wealth predators) while still allowing it to be in the game (multiply it properly).
If you’re in the latter situation (i.e., you have a small amount of money to invest, but want it to produce greater and faster returns), we’ll pass along little-known ideas, tools, and companies that can speed up the money-accumulation process for you.
Many well-meaning people have taught you to believe that you don’t really have wealth, if you don’t save. I’m going to tweak this sacred cow money-mantra a bit and brand it with this:
Wealth only STAYS on an upward track when you give your money a chance to work for you. There’s a big different between saving & investing versus spending & consuming.
Investments have always been, and will always be, more profitable than saving money. The reason for that is inflation. If you just save money, the inflation simply “eats” it with time, and the money cost decreases. As a result, you’re not able to buy as much with your money as you were ten years ago.
Sure we have tools and resources inside the Wealth Vault that’ll give you the inside-track to reducing taxes, winning the credit game, using debt wisely, saving and getting deals on things you never thought you could, and all that good stuff; however, we don’t advise you to FOCUS on “defense” only.
That’s what way too many wealth consultants advise. Yet, being a sports guy since I could walk, I know that playing a good “offense” will always ‘break down’ an equally good defense.
Yes, to have proper balance, you’ve gotta learn to manage both halves. But, you must learn to work them in tandem — both cash-flow accumulation and wealth protection at the same time.
Barry Goss is a renegade writer, information publisher, contrarian investor, and time-freedom advocate. As the co-founder of the LWL (Life Without Limits) publishing brand, he is known for his uncensored, candid, no-holds-barred stance on self-accountable accomplishment and helping others to focus on what matters most: results.
He’s a ‘change maker’ who, along with the LWL team, has inspired thousands of readers and customers to expand their perceptions and question life (and what’s possible while playing its game) like they’ve never questioned it before.
Posted April 20, 2011 at 3:57 am
Posted April 19, 2011 at 11:14 pm
There is a huge difference between being a trader and being a market analyst.
Analysts are paid by being right. On this basis alone I am not smart enough to be an analyst. Traders are paid by managing risk. These two skill sets are a world apart. In my experience, people who try to be traders by being analysts usually lose their grip at both ends of the rope.
An analyst will be judged negatively by poor market calls. When wrong, a trader closes the trade and moves onto the next opportunity. Hopefully, little harm done! Being wrong is a fundamental assumption for a trader.
Analysts study industries, companies and economic conditions. Traders, at least most traders, study price and could care less what company the price represents.
Analysts – even technical analysts – become heavily vested in the rightness of their opinions. Analysts gain reputational equity based on their correct calls. Traders become economically vested by what they do with their losing trades. Traders gain capital equity based on their handling of losing calls.
When an analyst changes an opinion on a stock or the general market, it is called a “revised forecast due to changing fundamentals.” When a trader changes an opinion on a trade, it is called “flexibility for capital preservation and survival.”
I am a classical chartist. I view charts as a trading tool, not a method to forecast prices. I don’t believe charts can forecast prices. I have a disdain for “chart book economists.” I do believe that charts can provide unique high potential/low risk trading opportunities. To me, that is the only real value of charts. The idea of forming some grand economic scenario based on a chart is absolutely ludicrous.
The reality is that most chart formations fail to…
WV Note: To learn how to piggy-back off the success of some very smart forex and futures traders, click here…
Posted April 14, 2011 at 6:29 am
by Charles E. Kirk:
Gerald Loeb was a founding partner of E.F. Hutton, a renowned and successful Wall Street trader, and the author of the books The Battle For Investment Survival and The Battle For Stock Market Profits.
Mr. Loeb promoted a contrarian view of the market as too risky to hold stocks for the long term in direct contrast to many of his generation.
At the time, many considered Loeb’s comments heresy to the buy and hold doctrine so common among many in the industry. While Loeb never had the opportunity to trade in an environment now ruled by quants, algorithmic trading and massive government intervention, his wisdom and insight is still applicable in today’s environment.
After all, the more things change, the more they always stay the same!