Monday, November 01, 2010

Exclusive Interview with Ken Fisher Part 1 - Debunking, Sleeping Well, Taxes

Ken Fisher is a money manager, Forbes columnist, and on the list of the Forbes 400 Richest Americans. His latest book, Debunkery: Learn It, Do It, and Profit from It-Seeing Through Wall Street's Money-Killing Myths was just published. He is also author of several other books, including The Ten Roads to Riches: The Ways the Wealthy Got There (And How You Can Too!) and How to Smell a Rat: The Five Signs of Financial Fraud

Ken Fisher Interview Part 1
Please note: Interview took place on Wednesday, October 27, 2010

Stockerblog: I'd like to first ask you about your new book Debunkery. Why don't we start out with you giving a description of what debunkery is and how you came up with the name?

Fisher: The name popped into my head. Debunkery is the process of what I talked about in my first question of The Only Three Questions That Count book, which is 'What Do You Believe that is Actually False'. In Debunkery, the game, if you will, is to take things that are widely accepted and see if you can subject them to some catechism that shows that they are not true. That which is thought of as conventional wisdom is exposed as actually false, and therefore bunk, and therefore the process of debunking or debunkery.

Debunkery is a game that I try to convey in the book by using some techniques that aren't necessarily terribly complicated, some of which are easier to learn than others but pretty much anyone can learn if they wanted. So part of it is not just showing the 50 things that people often believe that are bunk, but teaching them how to do the debunking themselves so that when they finish reading the book, they can do their own debunking.

Let's talk about Bunk #2 which is 'Well Rested Investors are Better Investors.' Now I think what you mean by that is the classic conservative type of investments like bonds or bank accounts, that type of thing, is not really the way to go; you really have to go into stocks to get the returns you are really looking for.

Fisher: Well you can view it that way, and that is one way to view it, but you see a lot of people on different web sites saying that you need a sleep-at-night factor, or sell down to the sleeping point; you hear all these things about sleeping and conventional wisdom. Or people say things like, "Well I've gotten out of the market and I'm not going to get back in until I'm more comfortable with things," "I don't think I could sleep if I owned category X now." And the fact is, capital markets, in all their aspects, are ones where comfort is a very expensive item.

If you are prone to be comfortable based on what you own, you better reconcile yourself to low or negative returns. Most of the time when people buy the things that are most comfortable, they actually end up getting negative returns. The history of buying comfort is very expensive.

So if you think of any asset class, doesn't matter whether it is stocks, bonds, commodities, anything, the time people are most comfortable with it is mostly really close to the peak. When people think they have the clearest future, it's close to the peak. When they think they can't see a clear future out there at all, that's more often, close to a bottom.

Stockerblog: I know that some investors feel comfortable with municipal bonds, they are looking at possible increases in capital gains taxes, they are wondering, well if I can get 5% tax free versus nine or ten percent on my stock portfolio, which is going to be taxed at the state and Federal level, maybe that's what I should be in.

Fisher: One of the things that they don't think through in the way capital markets work is it's not about whether you're rational, and it's not about whether your smarter or more rational than the guy down the road, the reality is capital markets discount that which everyone has been digesting for some time, and it's virtually impossible to think that a concept such as the ones you just articulated isn't exceptionally, widely digested by a very large number of people, who processed it and pressed it into securities at current prices.

So for someone to think, "I can get a better return off of something like that," whatever it is, it's very hard for people to get but it's an arrogant statement. It's saying my rational observation is somehow unique compared to all the other people confronted with the exact same phenomenon.

That's one of the hardest concepts that people have is that markets are discounters of all known information. And while markets are not perfectly efficient, they are relatively efficient. So something as simple as taxes, millions of people have forever made decisions based on tax rate changes, and there is actually a very clear and demonstrable history which people don't want to hear about, which is tax rate changes don't end up having facts that people would predict because they are priced into the market long before those tax changes ever come to pass.

Stockerblog: I remember that was in one of your bunk chapters.

Fisher: One of the things you hear people say all the time are things like "Stocks will do well or badly, bonds will do well or badly," you pick a category, it doesn't matter to me, "because capital gains rates are going up or down, or because income tax rates are going up or down." They somehow seem to forget that, and this is one of the points I use in Debunkery, is that history is actually very useful for debunking, because we've had a lot of times in the past where interest rates have gone up and own, and tax rates have gone up and down, and so if something as simple as that were to have the effect that people think it might, they would see those changes when those simple changes occurred in the past, and that's easy to demonstrate.

I tell people all the time, stop and go back and check things. And very few people do, because what most people do is they go into simple observation of the way they think it out to work and they don't go any further than that. This is Bunk #7, which is Go With Your Gut. Your intuitive reaction to things, again everybody else's reactions which are not that different than yours, unless you think you are really unique which is a really arrogant statement, they are already priced into the market already.

End of Part 1

The Debunkery book is available at Amazon.

Ken Fisher obviously doesn't give individual stock recommendations in his interviews, but some stocks he likes that were mentioned in his recent Forbes columns are available in the form of a free Excel list at

If you missed last years interview, you can check it out as follows: Part 1, Part 2, Part 3, Part 4, Part 5, Part 6

By Fred Fuld at

Disclosure: Interviewer doesn't own any of the stocks mentioned above at the time the article was written.

Copyright 2010. All rights reserved. Reproduction of this interview prohibited without permission. All opinions are those of Ken Fisher, and do not represent the opinions of or the interviewer. Neither Stockerblog nor the interviewer nor the interviewee are rendering tax, legal, or investment advice in this interview. If you want tax, legal, or investment advice, contact the appropriate professional.

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