Exclusive Interview with Ken Fisher: Get Used to Being Wrong

Henry Truc  |

Legendary investor Ken Fisher, CEO of Fisher Investments, will be delivering the keynote address at the inaugural equities.com Small-Cap Stars Conference at the NASDAQ MarketSite on December 18, 2014. This is part two of equities.com's interview with Ken. Be sure to read part one of our interview here.

EQ: Another great book of yours is Plan Your Prosperity: The Only Retirement Guide You’ll Ever Need, Starting Now--Whether You're 22, 52 or 82, which helps to teach people of all ages how to invest smarter and manage their finances better. There have been a lot of reports that indicate the young millennial generation has been significantly worse at doing this than their predecessors. What advice do you have for them?

Fisher: First of all, I don’t particularly believe that’s true. I know that’s what people say, but I don’t particularly believe it. The simple fact is that a tiny percentage of the world has most of the income and most of the wealth. I don’t care how you measure it. It’s always been that way, and I believe it will almost always be that way.

Let me just point you to my generation: the older baby boomers. Older baby boomers were freaking terrible at saving and investing. Many of them still are today. But baby boomers overall mostly didn’t save too much. Some of them saved a lot. But, a lot of them have no savings at all. Why? Because they spent it all, and the fact is that’s because they didn’t think to deploy the right tactics.

I have a theory that I’m not sure is right and I’ll never be able to prove, but I believe every young generation has its own features that it thinks—for good or for bad—are unique only to them. Meanwhile, every older generation looks at the younger generation and ascribes to them features that they think are unique only to themselves too, which are both maybe good and maybe bad.

EQ: So, in a way, every generation thinks they’re special and different in their own way, but share a lot of the same characteristics?

Fisher: Right. Every young generation, as it goes through life, is a little bit like a rock that fell off of a canyon and into a river. Slowly over geologic time, it get the rough edges of it rounded off so that when it is old, even though it’s not the exact same shape as all the other rocks in the river, it is a lot more like all the other rocks in the river in terms of general roundness. It has rounded edges like all the other rocks in the river that all got in there more or less the same way.

When these young people get to be like today’s older people—I don’t mean today’s older people like 35, I mean today’s older people like 75—they’ll feel and be concerned about mostly the same issues that the 75-year-olds today are concerned about.

I don’t mean the specifics like Ebola or changes in tax laws. But the general things that are important to older people will be the things that the younger people will think of as important, and planning for your age is no different. The basics of it don’t really change.

Another factor that young people have going their way, I believe, is we are increasing the longevity that people have. My generation had this, but not as much as these people and the generation after them will have. So, they actually have more time to plan over. People are living longer and longer. Longevity keeps increasing. That’s going to keep happening through basic evolutions of technology, medicine, biotech, etc.

If you look at how long you’re supposed to live once you get to 50, it’s about seven to eight years longer today than when I was young, and that’s going to keep getting longer, and that means the young people have more time for planning.

EQ: So that’s led, perhaps, to the demographic trends being stretched a bit more than in previous generations. They’re taking a longer time to buy a house, to get married, to have kids. Things like that.

Fisher: And why not? Why not in some ways? Think about it in a different way. When I was a young guy, it was rare that a woman had children after 35. These days, because they can—including things like in vitro, which didn’t exist when I was young—women are having children later and later. They can rationally make the decision that if they choose to, and many do, they can postpone these things. There’s nothing wrong with that.

EQ: Now, I wanted to get your opinion on some opportunities in the market. Obviously, there are certain areas that are somewhat overbought and other areas that are undervalued. Currently, I believe, your top five holdings at Fisher Investments are American Express (AXP) , Apple (AAPL) , Johnson & Johnson (JNJ) , Pfizer (PFE) , and Wells Fargo (WFC) . You’ve also said you’re bullish on areas like biotech. What are the opportunities that you like now in this market? How should investors go about finding their own?

Fisher: Generally, I tend to think in a top-down modality, so I think about categories like countries, sectors, growth value, big and small—stuff like that. I tend to believe there’s a time for everything, and that everything’s time is not right now. Some things are always more prone to be good than other things, but I tend to believe that the environment that we’re moving into does well with Health Care, Tech, and Finance. That leads us into the realms that you just described, but I want to make two statements.

One, I tend to believe that categories that should lead now include Tech, Health Care, and Finance. Two, I also believe that I always know I may be wrong, and therefore, I should own some of the categories that I don’t think will lead. So if I am wrong, I’m not wrong by too darn much.

You know, I’m in a world and your readers are almost surely in a world where the very best people are wrong a lot. If you’re a little more right than you are wrong over the long-term, you’re a winner. Most people usually have difficulty controlling themselves. Even the very best people are still wrong a lot. If you could be right 70% of the time in the long term, you’d become a living legend and you’d get into kind of the Warren Buffett status of life.

That means you better be used to the notion of being wrong pretty often, and wrong pretty often long enough that it’s annoying.

EQ: That’s a great point. How should investors plan around that, knowing that they’re going to be wrong on a pretty regular basis?

Fisher: Don’t take too big a bet to try to hit big, because you risk ending up just going home. Whatever it is you’re doing, you should do something that would perform relatively well if your hypothesis is dead wrong and you do really poorly. Therefore, while I tend to believe those categories are the ones that should lead the market, that doesn’t leave me in a position of wanting to not be exposed at all to the other sectors.

EQ: Right, so it’s always good for investors to be diversified to some extent. Lastly, equities.com likes to focus on small-cap opportunities. That’s been an area we like to corner in terms of coverage for investors. You’ve been called a pioneer in this space when it comes to small-cap value investing. It’s been a rough year for small caps. What are your thoughts for this space?

Fisher: I’ll give you short-term timing thoughts, and then long-term non-timing thoughts. In the long-term, this category is a great category. It’s almost intuitively a category with more volatility around it than the average of the market.

If you think it through the way I worked on it once upon a time a long time ago—not when I was first doing it in the 1970s, but as I was thinking it through in the later 1980s and early 1990s—it tends to do best relative to the market when big-cap growth does worse. It tends to do worst relative to the market when big-cap growth does best. A line that I created a long time ago is that style-opposites tend to perform oppositely. So, saying that small-cap value would do well or badly relative to the market at a point in time is axiomatic to saying that big growth would do the reverse.

But going back to my prior comments, I want to be real clear that if you’re just looking at those two categories of big cap and small cap, no matter what you think they’re going to do, I wouldn’t overweight one or the other too darn much unless you really think you know every darn thing, and there’s very few people that do. I’d overweight, which I think does best, and then own some of the other against it.

We have lots of bull market ahead, it’s a perfectly fine place for fishing among small value stuff. But I wouldn’t do that to the exclusion of big growth.

EQ: Ken, thank you for your time. Do you have anything about Fisher Investments or maybe a potential book you’re working on that our readers should know about?

Fisher: I am working on a book, and I don’t have a finalized title yet. But it’s about the things that make up the tactics of correct contrarianism as opposed to what I think contrarianism is normally thought to be. Hopefully, I’ll have it finished by year-end.

As for Fisher Investments, we’re just shy of $60 billion in assets under management with 27,000 in-network clients spanning across the United States, Britain, and Western Europe. We do a lot of stuff, and I guess you already know all that.

Click here to read part one of our interview with Ken Fisher. To learn more about the inaugural equities.com Small-Cap Stars Conference, go to www.equitiesevents.com.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer



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