The Only Three Questions That Count: Investing by Knowing What Others Don't (Fisher Investments Press)

481 Pages·2006·6.38 MB·English

by  Ken Fisher

fish_a01ffirs.qxd 11/6/06 3:37 PM Page i
The Only
Three
Questions
That Count
fish_a01ffirs.qxd 11/6/06 3:37 PM Page ii
fish_a01ffirs.qxd 11/6/06 3:37 PM Page iii
The Only
Three
Questions
That Count
Investing by Knowing
What Others Don’t
KENNETH L. FISHER
WITH JENNIFER CHOU
AND LARA HOFFMANS
FOREWORD BY JAMES J. CRAMER
John Wiley & Sons, Inc.
fish_a01ffirs.qxd 11/6/06 3:37 PM Page iv
Copyright © 2007 by Kenneth L. Fisher. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any
form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise,
except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without
either the prior written permission of the Publisher, or authorization through payment of the
appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers,
MA 01923, [phone], fax [phone], or on the web at www.copyright.com. Requests
to the Publisher for permission should be addressed to the Permissions Department, John Wiley
& Sons, Inc., 111 River Street, Hoboken, NJ 07030, [phone], fax [phone], or online
at http://www.wiley.com/go/permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best
efforts in preparing this book, they make no representations or warranties with respect to the
accuracy or completeness of the contents of this book and specifically disclaim any implied
warranties of merchantability or fitness for a particular purpose. No warranty may be created or
extended by sales representatives or written sales materials. The advice and strategies contained
herein may not be suitable for your situation. You should consult with a professional where
appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other
commercial damages, including but not limited to special, incidental, consequential, or other
damages.
For general information on our other products and services or for technical support, please
contact our Customer Care Department within the United States at [phone], outside the
United States at [phone] or fax [phone].
Wiley also publishes its books in a variety of electronic formats. Some content that appears in
print may not be available in electronic books. For more information about Wiley products, visit
our web site at www.wiley.com.
ISBN-13: 978-0-470-07499-2
ISBN-10: 0-470-07499-X
Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1
fish_a02ftoc.qxd 11/6/06 3:54 PM Page v
C O N T E N T S
Acknowledgments ix
Foreword xiii
Preface xix
Who Am I to Tell You Something That Counts? xix
Idiots and Professionals: Oh, but I
Repeat Myself xxii
Because Mr. Crafty, It’s Not a Craft xxvi
It’s All Latin to Me—Starting to Think like
a Scientist xxix
The Only Three Questions That Count xxx
1 Question One: What Do You Believe That
Is Actually False? 1
If You Knew It Was Wrong, You Wouldn’t
Believe It 1
The Mythological Correlation 8
Always Look at It Differently 20
When You Are Really, Really Wrong 27
2 Question Two: What Can You Fathom That
Others Find Unfathomable? 37
Fathoming the Unfathomable 37
Ignore the Rock in the Bushes 38
v
fish_a02ftoc.qxd 11/6/06 3:54 PM Page vi
vi Contents
Discounting the Media Machine and Advanced
Fad Avoidance 40
The Shocking Truth about Yield Curves 48
What the Yield Curve Is Trying to Tell You 63
The Presidential Term Cycle 72
3 Question Three: What the Heck Is My Brain
Doing to Blindside Me Now? 81
It’s Not Your Fault—Blame Evolution 81
Cracking the Stone Age Code—Pride and Regret 87
The Great Humiliator’s Favorite Tricks 105
Get Your Head Out of the Cave 107
4 Capital Markets Technology 119
Building and Putting Capital Markets Technology
into Practice 119
It’s Good while It Lasts 122
Forecast with Accuracy, Not like a Professional 128
Better Living through Global Benchmarking 140
5 When There’s No There, There! 165
Johns Hopkins, My Grampa, Life Lessons, and
Pulling a Gertrude 165
In the Center Ring—Oil versus Stocks 171
Sell in May because the January Effect Will
Dampen Your Santa Claus Rally Unless There
Is a Witching Effect 185
6 No, It’s Just the Opposite 193
When You Are Wrong—Really, Really,
Really Wrong 193
Multiplier Effects and the Heroin-Addicted
Apple iPod Borrower 202
Let’s Trade This Deficit for That One 213
The New Gold Standard 222
fish_a02ftoc.qxd 11/6/06 3:54 PM Page vii
Contents vii
7 Shocking but True 235
Supply and Demand...and That’s It 235
Weak Dollar, Strong Dollar—What Does It Matter? 257
8 The Great Humiliator and Your Stone-Age Brain 273
That Predictable Market 273
Anatomy of a Bubble 282
Some Basic Bear Rules 293
What Causes a Bear Market? 304
9 Putting It All Together 311
Stick with Your Strategy and Stick It to Him 311
Four Rules That Count 324
Finally! How to Pick Stocks That Only Win 343
When the Heck Do You Sell? 352
Conclusion 359
Transformationalism 360
Appendix A: U.S. Equity Total Returns 1830 to 1925 367
Appendix B: S&P 500 Composite Returns 369
Appendix C: Simulated Technology Returns 375
Appendix D: Nasdaq Composite Returns 377
Appendix E: U.K. Stock Market Total Returns 381
Appendix F: U.K. Stock Market (FTSE All-Share)
Total Returns 385
Appendix G: Germany Stock Market Returns 389
Appendix H: Germany Stock Market (DAX) Total Returns 393
Appendix I: Japan Stock Market Total Returns 397
fish_a02ftoc.qxd 11/6/06 3:54 PM Page viii
viii Contents
Appendix J: Japan Stock Market (TOPIX) Total Returns 401
Appendix K: Fisher Investments Global Total Return
Performance 405
Appendix L: Ten-Year History of the ForbesReport Card 407
Appendix M: The United Deficits: Data 409
Notes 411
Glossary 421
Index 431
fish_a03fbetw.qxd 11/7/06 12:10 PM Page ix
A C K N O W L E D G M E N T S
T
his book originally sprang from interactions between literary agent Jeff
Herman and me. Jeff was eager for me to do a book since I hadn’t done
one in so many years. I had the concept but wasn’t keen on the energy and
time commitment necessary to complete a work of this size. Having done
three books before I knew it would be a lot of work. Jeff kept at me, persuad-
ing me he would sell my book and publishers would receive it well and others
would help me. He provided a lot of motivation. Many would tell you he is the
best book agent in America today and I don’t disagree. If you’re thinking of
writing a book, I encourage you to read his books: Write the Perfect Book Pro-
posal: 10 That Sold and Why,and Jeff Herman’s Guide to Book Publishers, Editors,
& Literary Agents, 2007.He really is as good as it gets.
Then I recruited Lara Hoffmans and Jennifer Chou. Lara had been an in-
vestment counselor in my firm’s client services group dispensing advice to
more than 100 clients having had a prior background in the industry. But be-
fore that she had a background in writing. Jennifer had worked for seven
years in our research group primarily doing capital markets research for
either me or Andrew Teufel. We came to terms. Jennifer would be responsible
for the data and visuals and fact checking and Lara would rough out the book.
Working from meetings discussing what we would cover, we created an out-
line that point by point and item by item Lara turned into a very rough draft
while Jennifer started cranking out data. Then I started editing and changing.
After an edit Lara would clean it up, edit my edits, and we would look at
it again.
But the data burden was too great. There is a mass of data in this book and
statistics behind the data. And a lot of visuals—120 in all—and all data-laden.
ix