Earlier tonight, I had the pleasure of hearing Ken Fisher give a lecture on his predictions for the future of the market. Ken is a long-time columnist for Forbes Magazine and one of the more influential financial writers. He is also the son of Phil Fisher (the author of "Common Stocks, Uncommon Profits" -- one of Warren Buffett's favorite investing books). I found his lecture most surprising as it focused not on fundamental analysis (as I expected), but on predicting market trends based on Presidential election cycles, the yield curve in various countries, and other esoteric influences. Although I went to the lecture mostly for kicks (boy, its scary to think what I now do for kicks versus what I did when I was in my 20s and 30s), I did find that he had a few things of value to say about: (1) portfolio strategy (pretty much the Markowitz theory of its more important what classes of assets you buy then what individual assets within the class); (2) strategy against market downturns (use 4% of your funds to buy puts -- against a standard index, such as the Russell 2000 -- and consider it to be an insurance premium payment that you will lose if the catastrophe does not take place); and (3) the overall market PE Ratio (there is absolutely no correlation between the market's overall PE Ratio and performance -- in other words, the market performs just as well when PEs reach historical highs as when they're at historical lows). Prior to the lecture, I did get the chance to speak with him one-on-one. Obviously, I couldn't resist utilizing the opportunity to ask him his opinion on Mechanical Investing. His response, in a nutshell, "It doesn't work." I did not challange his conclusions, but simply noted his reply as a little more evidence that our little corner of the investment world may still be secure from "The Street" for some time.Here's hoping that all the other Ken Fishers out there are similarly dismissive of our investment strategy.Cheers,Gany
Does this mean that I have to give back all of the money that I have made using MI?:-)
I lost a little bit of respect for Fisher and his way of thinking after his 8/7/2000 article. Here is a blurb from it."Where would JFK have been in 1960 without his father? Sort of where George W. would be without his. Neither did much to justify leading the Free World. Each is/was young, relatively inexperienced, popular with female voters and perceived as charming. Neither has/had been in the public eye long or run nationally before. Kennedy wasn't widely seen as bright until 1960. Expect Bush to win. Don't expect Bush to seem bright."I'm no rabid Bush fan, but I thought it was a little ironic for Fisher to cast these stones, when the same thing could be said about him. Where would Ken Fisher be without Philip Fisher? Maybe the same place he is now, but I thought it was a low blow.Here is a link to the whole article www.forbes.com/forbes/00/0807/6604144a.htmpowerphil
powerphil wrote:I lost a little bit of respect for Fisher and his way of thinking after his 8/7/2000 article . . . I'm no rabid Bush fan, but I thought it was a little ironic for Fisher to cast these stones, when the same thing could be said about him. Where would Ken Fisher be without Philip Fisher? Maybe the same place he is now, but I thought it was a low blow.Well, at least he was an equal opportunity insulter. He also took cheap shots at Reagan (Ronnie, not Lear's daughter), Greenspan, professional financial analysts and market forcasters (other than himself), the entire Euro Board of Governors, the American investing public. . . . Although he did his best to hide his arrogance, IMO it kept peeping out from time to time. On the other hand, he really is a smart guy who is well versed in the academic underpinnings of the market. He also appears to be a fairly contrarian investor -- running away from the heard whenever he gets a chance.More on the election: According to Fisher, the balance of power between Congress and the executive branch is far more important to the market (in the short run) than who wins the election. In other words, if Bush wins (which he considers almost a certainty) it would be preferable for the Democrats to regain control of Congress (which he also considers almost a certainty). If Gore wins, we're better off with the house in Republican hands. He bases this conclusion on the fact that gridlock is better than the bills that the majority party will pass without having to compromise. Although his theory is a bit more complicated, Fisher's main assertion is that almost all bills have to do with the redistribution of wealth - something that makes Mr. Market very uneasy. Thus, the country is simply better off in the short run with letting pure economic forces dictate the price of individual securities.If anyone has any other questions about his lecture, feel free to contact me on or off line.Cheers,Gany (lesspowerphil)PS -- I was most impressed with his style of investing for those who want to preserve (not accumulate) capitol. I would recommend his investment company's managed portfolio plan as a possibility for those who need an emergency plan for their spouces upon their ultimate demise (and shun index funds, bonds and other such approaches).
Gany,Where did you hear Fisher's lecture? RichardPS. You've been away from the boards for a while, haven't you? Welcome back!
Rickty wrote:Where did you hear Fisher's lecture?Richard:I heard him speak at the Hilton Hotel in Del Mar, California. The hotel is lcoated right across from the Racetrack. Although I prefer to risk my money in the market, I should note that it's an absolutely gorgeous track with a sweeping view of the Pacific Ocean in the background.For some reason, my name must have been mixed up with the numerous septurgenerian zillionaires that made up most of the audience. Who knows, maybe Ray mentioned my name, or could it have been Sparfarkle?As you also noticed, I have been gone for some time. See my recent post (Ganymede's Vacation) at:http://boards.fool.com/Message.asp?mid=13181176Thanks for noticing.
It's a secret club in here, with special passwords and terms. Can you say "I'm a fool, wouldn't you like to be a fool too?" as you watch your $ grow?cat
I love Del Mar! cat
I was most impressed with his style of investing for those who want to preserve (not accumulate) capitol. I would recommend his investment company's managed portfolio plan as a possibility for those who need an emergency plan for their spouses upon their ultimate demise (and shun index funds, bonds and other such approaches).**************************************************I have a similar view. I told the local Fisher representative that I was interested in their management of my widow's portfolio. (She wouldn't be comfortable doing it herself.) I didn't tell him how I pick my stocks, just that they were mostly tech. Of course, he was very confident their approach would be better in the long run.Ratio
>(2) strategy against market downturns (use 4% of your funds to buy puts -- against a standard index, such as the Russell 2000 -- and consider it to be an insurance premium payment that you will lose if the catastrophe does not take place)>This sounds very interesting. Mechanical investing seems to offer great returns at a price of great volatility. It would value-added to at least ponder the impact of some kind of put insurance. Do you by any chance know what kind of Russell 2000 puts he was referring to? In other words, for example, at the money? And what kind of time frame?Much obliged,Nils
Nils wrote:This sounds very interesting. Mechanical investing seems to offer great returns at a price of great volatility. It would value-added to at least ponder the impact of some kind of put insurance. Do you by any chance know what kind of Russell 2000 puts he was referring to? In other words, for example, at the money? And what kind of time frame?My recollection (w/out looking at my notes which are in my office) is that the time frame and form of the puts would vary year to year depending on what his forcast for the upcoming year. For example, his 2000 forcast was for a flat S&P 500 and DOW, a NASDAQ that lost 10 - 15%, and Foreign stocks that made a slight profit. In this scenario, he would most likely not utilize any form of Put on an American Index.However, if he was forcasting growth in the small cap area and placed a sizable portion of an investor's funds in Russell 2000 stocks, he would then utilize the puts as a form of insurance if his prediction was inacccurate. Accordingly, he would purchase out-of-the-money puts that would be most likely worthless, unless the Index fell somewhere between 5-10%. In other words, he was not concerned with off setting small losses (or increasing gains), but using the puts as a form of catastrophe insurance. Thus, he was treating the cost of the out-of-the-money puts as a form of insurance premium that he was willing to write-off to guarentee that his client would not suffer any huge loss. As he appeared to reevaluate his predictions on a yearly basis, he most likely would have approximately the same time frame for the puts.Following Fisher's philosophy, I believe that we might look at NASDAQ 100 out-of-the-money puts that correspond to the time frame of our portfolio rebalancing (i.e., monthly, quarterly, semi-annually, or annually). However, I'd love to hear what Sparfarkle and the other option experts on the board think.Cheers,GanymedePS -- Interestingly, Fisher noted that if the market went up 20%, he would be embarassed if a client made 40% (although, presumably, he'd get over it) -- as he would have exposed his client to an inordinant amount of risk in order to obtain results that were twice the market average. Fisher believes that for most investors, the fear of greater than average loss outweighs the joy of the extra profit. Although this is most likely a good rule for a portfolio manager, I'm not sure it accurately describes the mind set of most mechanical investors.
It's a secret club in here, with special passwords and terms. Can you say "I'm a fool, wouldn't you like to be a fool too?" as you watch your $ grow?I can say that but right now I'm in a FOG over the PEG in my Overlap ;-)
Chris:Sounds like you'd better watch out or the sparks are going to start some (un)emotional growth.
<<Do you by any chance know what kind of Russell 2000 puts he was referring to? >>"Put protection costs me too much to put on very often. When you do it buy Russell 2000 puts that are about five percent out of the money for about 10 months.Ken Fisher."and"Regarding your question about what I would if we get to the fork in the road and I decide it's a bear market: I'd keep my super cap stocks and overlay them with a Russell 2000 put that was about 10-11 months in duration and 5% out of the money. As the bear market would unfold small caps would fall more than big caps and the put would increase in value more than the super caps would fall, allowing you to actually make money and stall off capital gains for awhile."
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