Sunday, November 27, 2011

Some Ken Fisher vitamins for long term investors

Ken Fisher is one of the more successful money managers in today’s world and he has written 8 bestsellers on investing. He is now 40 years in the money management business and his investment results and longevity attest to his investment acumen. An avid researcher of history and financial history, Ken has always a long term view on investing and the title of his latest book speaks for itself: MARKETS NEVER FORGET (BUT PEOPLE DO): HOW YOUR MEMORY IS COSTING YOU MONEY AND WHY THIS TIME ISN’T DIFFERENT.

The book’s title is its message but if you think that you can skip reading it, you’ve got it all wrong. I’ve quoted from Ken’s previous books ‘The Only Three Questions That Count’ and in spite of several good concepts that I picked up from it, I just couldn’t finish it. But ‘Markets Never Forget’ is different, not only is it chock full of valuable investment concepts, even more so, I cannot put it down, it is a great read. Lately with my playbook on my side at every step in my daily life, so is my Kobo e-book reader. After a number of bug crippling weeks, Kobo was literally bugged down. But now with the new update it is once again hunky-dory and Ken is on my side in the livingroom, before falling asleep and at my daily stop: ‘Starbucks’.

I love digital books, lately I threw out every hardcover and paperback I owned, de-cluttering my house. Wow, the empty space it creates along with my kids moving on to more independent life. Not that I don’t read books anymore, to the contrary, but it is now all in the cloud and on Kobo. I digress… Ken Fisher combined with Kobo lets me make easy screen captures of relevant text and graphs. I have shown a similar graph on this blog before, but here is Ken’s table regarding positive and negative stock returns shown below:

Click on the picture to enlarge.
The table shows that on a daily basis, stocks are more up than down. That is why over the long run stocks provide you a positive return especially when you include… dividend return. Even if you consider the 1970’s a period (more precisely 1965-1981 according to Ken) of no stock appreciation the dividends would have added to your profits and even the imperfect Dow Index would have resulted in a positive annual return of 4.5% annually or 111% cumulatively over that 17 year period of ‘flat returns’. It is one of the reasons Ken claims that there are no 'secular bear' markets and he confirms a view expressed on this blog before, we are currently NOT in a Japan style ‘lost decade’ we’re probably in a long bull market that started in 2008 and we’re experiencing a nasty correction from which we will, as usual, recover.

You may look at the above table also differently and conclude that day traders have a 47% chance of making a loss. When you hold a stock one month, your chance of losing is down to 37.7%; after a year your chance of losing is 27.1%. After five years there is still a 13.1% chance you are down but after 20 years you are ahead for sure. There is no guarantee anyone knows or can predict the future accurately; we can only extrapolate and guess. However, Ken’s latest book should help you convince that stock market investment is not dead and that probably there are many profitable years to come. Ken provides some surely needed vitamins for the long term investor in the current nastiness.

1 comment: