Today the market has been up and sideways basically, perhaps a little more defensive this afternoon,...
The Only Three Questions That Count
02/01/2007 12:00 am EST
My head is positively spinning! After 20+ years in the investment business, Ken Fisher's new book has just challenged me to reexamine everything I thought I knew about investing, and that's a good thing!
If you are willing to set aside your preconceived notions, and even if you don't buy into every concept in this book, you will be doing yourself a favor by reading this tome and requiring your brain to thoroughly examine those investment tenets you hold so dear.
And that is Kens major point: to be a successful investor, you must challenge the status quo, and treat investment as a scientific query, not as an art or craft. His three questions are designed to get you thinking in just that manner:
1) Identify those things you be believe that are really false; if everyone believes it, it must not be true. Be skeptical about everything! Ken turns many of our common beliefs about investing on their ears, including what we think we know about P/E ratios, big government deficits, a weak U.S. dollar, growing GDP, growth versus value stocks, and many more.
2) What can you fathom that others find unfathomable? Ken uses an interesting example, what he calls the 'rock in the bushes' to prompt the reader into out-of- the-box thinking, or looking where everyone else is not looking. He also brings up some very good recommendations on how to avoid investment fads, how to find out if two factors are truly correlated and how to use his invention, the global yield curve, to determine different investment cycles.
3) What is your brain doing to mislead and misguide you? Ken suggests that our brains are hardwired for a world in which we no longer live, and recommends strategies for avoiding cave man, or survival thinking that we no longer need, and instead suggests methods for investment success, such as ignoring popular patterns, forgetting the notion that all stocks in your portfolio must beat the market, and the importance of using a benchmark to test your results.
Ken shares examples of specific technologies and creations that he has used with stellar success in the past, pointing out how they lose their predictive power once they are generally accepted by other investors, a warning that a continued questioning and challenging of all you hold dear is required for long-term investing success.
He also provides great insight into the analysis of bull and bear markets and the importance of predicting the direction , not the magnitude of market cycles.
Ken's take on what makes a successful investor (2/3 not making mistakes; 1/3 doing something right) is provocative and sure to set the tongues of stock pickers wagging. And his follow-up that just some 10% of investing success is derived from choosing the right investment will send some of us who make our living picking stocks into depression.
Unless we can set aside our preconceived notions and take an analytical look at exactly what we believe, as well as the actual results from those tenets, with the hope of becoming better investors, exactly what he wants us to do!
This is a book designed for investors (and pros) that are willing to believe that they don't know everything about investing. Even if you don't agree with some of its declarations, you will at least come away questioning the status quoâ€“and that in itself will make it worth the read.
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