Sunday, September 19, 2010

The Making Of A Market Guru: 1994 - 1995

Ken Fisher manages $35 billion in individual and institutional funds and is value-focused. His father wrote a terrific investment book discussed here, but this book is about Ken's investment philosophy, which evolved over his career. This book chronicles that value-focused evolution over his 25 years as a Forbes columnist.

In 1994, gold was somewhat of a popular investment. Investors were wary about inflation, and were bullish on emerging markets China and India, not unlike today! Fisher argues that gold relies on the greater fool theory, as prices were well-above production costs, which cannot last.

On the subject of inflation, Fisher argues that it can remain tame even as the monetary base rises, which is what was occurring in the mid-1990s. This is because even though the monetary base may be high, if banks are unwilling or unable to lend money out, then inflation can remain low.

Fisher also has some advice for those who believe in the stock-picking ability of the Beardstown Ladies. For several reasons, he argues that they likely have no idea what they are doing (despite their record of success). A few years later, it was determined that they were not nearly as good as they said they were!

Finally, Fisher has some pointers for investors when it comes to having investment ideas peer reviewed. He argues that if most people agree with you on the future price direction of a security, you should not take it as confirmation that you are right. In fact, it is likely confirmation that you are wrong! The best investments are usually those that are out of favour.

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