Sunday, September 12, 2010

The Making Of A Market Guru: 1990 - 1991

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.

Heading into the 1990-1991 recession, most economists were predicting that a recession would be avoided. Fisher notes that economists in the aggregate never correctly predict recessions. As a group, never more than 15% of economists have ever predicted a recession, according to Fisher.

As the recession of 1990-1991 did in fact hit, however, Fisher saw a buying opportunity. The markets had fallen, with small-caps having been particularly hit hard. Doom and gloom and talk of a depression were rampant, leading Fisher to become bullish on stocks.

Talk was rampant that America was in too much debt, but Fisher did not buy those arguments. Consumer debt to income was just a couple of points higher than what it was in the last recession, and Americans were still earning returns that were higher than the costs of debt, suggesting there was room for more debt still for years to come.

While many were bearish on America (and high on Japan), Fisher was decidedly bullish on America, arguing that the 1990s would be America's decade, for two main reasons. First, America was #1 when it came to innovation, as all the newly invented products used around the world came from the United States, and Fisher expected that to continue. Second, demographic changes were to be in America's favour. As Europe and Japan were becoming older (higher retiree to worker ratios), America's baby boomers were entering their peak producing/earning years (45 - 54).

At the same time, Fisher warned investors to stay away from Japanese stocks, which were shown to be way overvalued on measures such as P/E and P/S.

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