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.
While stocks experienced extraordinary returns during the tech bubble, Fisher remained bullish through most of this period. In his columns, he fights against reader mail that assail him for abandoning his "value" roots.
Fisher explains why he remains bullish despite the high P/E level of the market. His reasons include:
- US stocks rarely fall in the President's third and fourth years
- The level of interest rates remains low, so liquidity is abound
- The dollar remains strong due to foreign flows as a result of lower foreign interest rates, further increasing liquidity
Speaking to the issue of the high P/E (which at the time was 34 for the S&P 500), Fisher argues that high P/E's are actually less risky than low P/E's. Usually, high P/E's are the result of high earnings on the horizon. When those high earnings are realized and the P/E subsequently drops as a result (due to the increase in the denominator), that's when risks increase, according to Fisher.
Fisher is also quite bullish on mega-cap stocks during this period, which are the largest of the large US stocks. His research (including the fact that mega-caps outperform other stocks at the end of bull markets and the beginning of bear markets) indicates that this trend should continue, and so he advises readers to buy big.