As I stated in my review of “The Book of Behavioral Investing” by James Montier, keeping a journal is a great tool for reviewing your previously held beliefs without any biases. This service is also offered by the annual letters from Berkshire Hathaway, The Sequoia Fund, and plenty of other groups of successful investors, who keep their past writings posted for investors to review and check against the now visible “future.” Many market pundits would be hard pressed to reveal their past predictions (likely due to a high rate of error); Ken Fisher, the CEO of Fisher Investments, has taken the challenge in “The Making of a Market Guru,” a compilation of 25 years worth of articles that he wrote in Forbes dating back to 1984.
Since the early 1980s, Mr. Fisher has had his moments of brilliance when it came to market analysis. One example is his September 1989 article “The End Is Nigh”, where he had this to say: “Another obvious bubble is the flood of institutional money being thrown at foreign stocks. These supposedly sophisticated folks absolutely do not see that they are speculating. They see themselves reducing risk by 'diversifying globally.' But the vast bulk of the bucks heads for countries with steep valuations and hot price action (Japan being number one). Remember, the dollar value of Japan’s market alone is fully half that of the world’s total. The ultrahigh Japanese valuations coupled with justifications for even more remind me of America’s elite 'one-decision' big cap stocks of the 1970-1972 mania. You recall what happened after that.”
As we can see today, Japan since 1989 (in aggregate) has been a tough place to be: Since the market peaked 38,957 on the last day of trading that year, it has fallen nearly 75% over the last 20 years.
On the other end, Mr. Fisher has had his share of miscalculation, which is simply a testament to the fact that he stuck his neck out and consistently made suggestions to investors in an uncertain world. Obviously, anybody who picks stocks over a quarter century will make calls that don’t pan out.
However, Mr. Fisher always gives a detailed explanation for his reasoning, and usually comes back to readers' questions from previous articles that may have left people confused or in disagreement. At the end of the book, it is much easier to find instances where he was spot on rather than off cue; thus is the result of career led by a logical and an unemotional approach to Mr. Market’s bouts of irrationality.
Importantly, as Fisher says himself, he believes in stocks more than forecasts, his own included. This is interesting, because almost every discussion is centered on macro trends and developments. However, he always comes back to the bottom-up picture at the end of the day. While it is important to understand the macroeconomic picture, the goal is not to predict; it is to prepare.
The book is a fantastic source for reliving past events in market history and learning from how they ended up playing out. It is easy to say that you have the patience and rationality to stay on the sidelines when the market is in a state of euphoria; reading articles from the days of rampant LBOs and sky-high internet stock valuations shows that in reality, this is easier said than done. In the words of George Santayana, “Those who do not learn from the past are doomed to repeat it”. Reading Ken Fisher’s articles of the past 25 years is a great way to “learn from the past;” for the investor who takes the lessons of time for what they are worth, you will be that much closer to avoiding the next “lesson” that comes around.
Disclosure: I paid for my copy of this book, and will not benefit in any way from readers’ purchases.
About the author:
I think Charlie Munger has the right idea: "Patience followed by pretty aggressive conduct."
I run a fairly concentrated portfolio, with a handful of positions accounting for the majority of the total. From the perspective of a businessman, I believe this is sufficient diversification.