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American Kenneth Fisher is one of the richest men in the US. Around the world he is recognised as one of the thirty top investment advisors. He is an avidly read columnist for the likes of Forbes and the Financial Times, a researcher, and over the last thirty years the proud author of eleven bestselling books on finance and investment. Born in 1950, his first job, on graduation, was with Philip Fisher the noted investment consultant and Ken's father. He founded his own investment firm, Fisher Investments in 1979, which now manages $42 billion in assets. Fisher Investments which operates throughout the world, has a client list which reads like the who's who of the corporate world as also of high net worth individuals
His primary belief is that it is the pursuit of passion and not the pursuit of wealth that actually creates wealth. "Most people don't get super wealthy by accumulating money. They get super wealthy by following some dream they are passionate about, whether it's starting and running a business, or being a rock star musician or a visual entertainer."
The Eight Principles of Fisher Investments
Fisher Investment's success is rooted in the eight principles enunciated by Ken Fisher.
We Build a Portfolio to Suit Your Needs Fisher recognises that different investors have different aims. While most invest for growth, there is also a section that looks for regular cash flow from their investments. Proper understanding of investors' needs, investment objectives, investment in specific industries and the length of time for which investments are made is completely analysed and addressed.
You Will Receive High-Touch Client Service to Help Keep You Educated and Comfortable. The Investment Counsellor keeps clients routinely updated about their portfolio. Keeping in regular touch with investors engenders rapport between the investment advisor and his/her client. Such a close relationship is essential for making sound investments.
You Will Work With a Stable Management Team at a Well-Established Firm. At this juncture, once the investment objectives have been identified, the actual investments to be made are taken over by an experienced 'Investment Policy Committee'. This committee manages the assets of over 150 popular and big institutional investors.
You Will Get a Comprehensive and Disciplined Approach to Your Investment Strategy The investment manager acts to protect and grow the investors' assets, rather than just mechanically choosing stocks to buy. The manager analyses markets around the world and develops an investment strategy consisting of equities, bonds and other securities to suit the interests of the investor. Thus the investor has complete clarity on where his or her investments are going.
Your Portfolio Can Benefit From a Global Approach to Investing Many US firms focus mostly on American stocks. At Fisher's, on the other hand, investment is a global exercise. It is correct that the US accounts for about half the world's stock value. Yet some of the well-run rapidly growing companies are found outside the US. Global investment increases the chances of growth, while limiting the risk of over investment in any one market.
Your Portfolio Can Benefit From a Flexible Approach to Investing Many advisors have investment styles that tend to emphasize a particular skill like investing for growth, value investing, and investment in certain classes of shares, certain industries, or even particular companies. A flexible approach means that all these approaches are integrated while making investments, and in line with the desired portfolio strategy. Specific investments are made based on forecasts made by in house experts. Thus while small companies shares may be bought at one point of time, large companies may be favoured at another. At appropriate times, money would be invested in bonds or held as cash.
Your Portfolio Can Benefit From Bull and Bear Market Tactics No investment advisor is right every time. But, Fisher Investments believes in learning the right lessons from past business and investment cycles. The asset mix is never static and aims to earn from both the bull and the bear markets with appropriately tailored strategies.
Our Services Have Fair, Transparent and Easy-to-Understand Fees Lastly, Fisher Investments practises a transparent and easy to understand method of charging fees. Investors have to pay a flat fee based on the portfolio size. If the portfolio does well then the company too earns good money, along with the investor and vice versa. No attempt is made to churn the market with as many 'sells' and buys' as possible to enhance revenues, since they do not charge commissions on trades.
On Contrarianism and 'Elephants'
People commonly misunderstand the concept of contrarian investment. They think that it means doing the opposite of what the mass does. The conventional thinking would be that if the masses are bearish, then contrarians should be bullish. Fisher thinks otherwise. He says that even doing the opposite can attract quite a few people and thus that also becomes a herd. For him, contrarianism means the ability to think differently from others. The investor must utilize the thinking of the crowd to figure out what is not likely to happen, rather than what will happen.
His focus is rather on what he calls 'elephants', rather than bulls and bears. He says that investors must think differently from both bulls and bears, unearthing views and insights that neither crowd recognises. "That is, spotting mighty elephants in the room that reveal either great opportunities or bad risks." An example of an 'elephant' would be a cutting edge technology enterprise that is innovative in its business.
Secrets of Successful investing
In his book 'Super Stocks' he sets out his ideas on valuation of stocks.
PSR ratio
His most original contribution to the industry is his Price to Sales Ratio, PSR, to evaluate the worth of companies. The formula that he sets out combines quantitative and qualitative factors with PSR, and taking a value-based approach, seeks to identify companies Fisher calls 'Super Companies', whose shares have the potential to increase 3 to 10 times in five years time.
Avoid Hype and Market noise
In choosing stocks to buy, Fisher urges us to disregard market chatter and hype. Most of the concerns that this kind of information addresses are mostly already priced into the stocks. For example regional economic or geopolitical crises do not move the markets; it would take a world war to do that. Take Greece for instance. The Greek economy is roughly the same size as the turnover of General Motors. "The markets didn't crash when GM filed for bankruptcy in June. Greece would have about the same impact."
Events and time horizon
To pick good stocks, investors should look at the 3 months to 30 months time horizon. Further, they should look for likely events in this time span but which are not being generally talked about. For example, the Supreme Court is about to rule on the legality of Affordable Care, again. If the court were to rule against the law, then there would be uncertainty, which would definitely affect markets. "A constitutional crisis that's now just a few months away -- nobody has that priced in," says Fisher. "Markets hate uncertainty."
Choosing sectors
The sectors that fall with the most force, he claims, bounce back the most. "Skip the biggest U.S. banks. Focus instead on materials, industrials and technology. More important, invest heavily overseas, where opportunities are the best." Specifically he likes health care and tech industries. One must always remember that people would prefer to avoid losses; even above their desire for gains.
Growth of margins
Another idea of his is that one should invest in fat-growth operating margin companies. "This power, for cycle after cycle, is an elephant in the room. You want to keep it real simple so you don't snatch defeat from the jaws of victory. And the way you do that is to focus on big, simple names."
Power of compound growth
Suppose you invest Rs.5, 000 every year for thirty five years, you would have invested Rs. 1.75 lakhs over the period. You may reasonably assume that your investment would grow to say Rs.3 lakhs at the end of the period. However because of compound returns, the figure will be closer to Rs. 13 lakhs. This is the way people become rich according to Fisher, "the road most travelled."
Emotional decisions
There is one principle that is inviolate. That is weak discipline and lack of self-control. "The common one is following your emotions. If you want comfort, markets are a very expensive place to get it. If you want to feel good, find a nice friend; get a dog."
Getting rich
One can attain success only if one has passion. If somebody sets out merely to get rich they may not succeed. Billionaires do what they do best and don't let external influences derail them. They also make best use of the resources available to them. "As a billionaire, your money is just one of the tools at your disposal. See it that way. Use it as a tool--a tool of value, but limited value. You wouldn't use a hammer to put in a screw. Think about what your money can accomplish for you as a tool and what it can't. It can be actual growth or defensive strategy, but it's still just a tool.
Further, in general rich people keep to the law strictly. However in cultural terms they often prove disruptive. Indeed this is the way they make their money. "I'm a financial guy but always openly hated and disrespected the traditional financial world. Still, I believe you must obey the laws rigidly. Culture, however, is different. Culture is the place from which all those laws evolve over time. Billionaires are culturally disrespectful by being culturally disruptive. They don't believe in the extant order. So they became non-adherent to the culture surrounding their strengths and future. This cultural disruption then effects change in the laws. Figure out what part of your culture you dislike and go disrupt it legally."
Staying Rich
Many billionaires posses a lot of illiquid wealth. He quotes J. Paul Getty, one of America's biggest tycoons. 'People who know what they're worth aren't worth very much.' Fisher adds, "really rich people don't really have any idea what they are actually worth because most of their worth is in things that are hard to price. Even Bill Gates or Warren Buffett would have a hard time knowing what he would get if he tried to sell it all right now. Focus less on your net worth today and more on what you can make valuable down the road."
Final words
After reaching a certain level of wealth, people find that it is time that becomes more valuable than money. "After a certain point," Fisher explains, "there isn't much more you can think of that you want. What becomes more desirable is time to enjoy life. The vacation homes, cars, boats, and wardrobes are just more stuff to deal with. Time is a diminishing, irreplaceable resource. Most super rich folk didn't make money just to spend time having fun on the things most folks enjoy."
Content is prepared by Wealth Forum and should not be construed as an opinion of HDFC Mutual Fund.
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Wise Advice: Learn
Ken Fisher is one of the most successful investment managers in the US, and also among the wealthiest Americans. His primary belief is that it is the pursuit of passion and not pursuit of wealth that actually creates wealth. Check out his 8 well-articulated principles of Fisher Investments - which tell his clients exactly what to expect from his firm. Read on to understand Ken Fisher's take on what contrarian investing is really all about, and the importance of spotting elephants rather than worrying about bulls and bears.