Debunkery: Learn It, Do It, and Profit from It -- Seeing Through Wall Street's Money-Killing Myths (Fisher Investments Press) - Hardcover

Fisher, Kenneth L.

Hardcover

ISBN 10: 0470285354 ISBN 13: 9780470285350

Publisher: Wiley, 2010

Synopsis

Legendary money manager Ken Fisher outlines the most common and costly mistakes investors make. *Small cap stocks are best for all time. Bunk! *A trade deficit is bad for markets. Bunk! *Stocks can't rise on high unemployment. Bunk! Many investors think they are safest following widely accepted Wall Street wisdom but much of Wall Street wisdom isn't so wise. In fact, it can be costly bunk. In Debunkery: Learn It, Do It, and Profit From It Seeing Through Wall Street's Money-Killing Myths, Ken Fisher named one of the 30 most influential individuals of the last three decades by Investment Advisor magazine details why so many investors fail to get the long-term results they desire. The short answer is many investors fail to question if what they believe is true and are therefore blinded by tradition, biases, ideology, or any number of cognitive errors. Your goal as an investor shouldn't be to be error-free that's impossible. Rather, to be more successful, you should aim to lower your error rate. Debunkery gets you started by debunking 50 common myths but that's just the beginning. It also gives you the tools you need to continue to do your own debunkery for the rest of your investing career.

About this title

Review:

challenges and refutes common, widely held investing myths and misperceptions bite-size chunks-where you can read one chapter or many (Euroinvestor.co.uk, October 2010). thoroughly recommended If I were a novice investor, I d make sure I read this book and memorised the first 32 lessons (Financial Times, November 2010).

From the Author:

Q: What exactly is Debunkery?

A: “Debunkery” is a comberation. Decades back my wife started calling all the semi-understandable words I made up “comberations”--an operation that is part combination, part abomination and yet you know largely what it means instantly. With debunkery, I hope you intuitively get that it’s myth debunking--with a twist. The twist is that it’s a game, of sorts. A serious game, of course, because we’re dealing with money and capital markets--serious topics. But games and play are part of how we learn. And debunkery--particularly in investing--is a game requiring dedication and practice. So debunkery means unearthing truths or, at the very least, overturning common but widespread and frequently harmful market untruths, myths, and misperceptions most investors fall prey to.

Far too many investors believe their goal should be to be error-free. This is utterly wrong. All investors, even the long-term best investors, make many, many mistakes. See it this way--if you can be right on average 70% of the time over the long term, you aren’t just a great investor, you are a living legend. But that means being wrong 30% of the time. Your aim should be to understand you will make errors, while trying to avoid the commonest mistakes many (if not most) investors make. That can help you improve your long-term results. And Debunkery can show you how.

 

Q: It seems like everyone is so down on the stock market right now. What made you want to write a book about investing now?

 

A: There’s a social tendency, easily documented, following all bear markets to continue to think all the problems newly emerged and envisioned in the previous bear market mean stocks can’t ever rise again--or at least not for a long, long time, usually defined as “the next decade.” Usually, folks then think we’re in a period where “it’s different this time”--Sir John Templeton’s famous “four most dangerous words in investing.” Actually, this concept is normal after every big bear market, not different this time at all.

 

The bigger the bear market, the more people are likely to remain dour and fearful for a long time afterward. And fear particularly makes people turn to the safety of “common wisdom” or follow those rules of thumb that “everyone knows.” Of course, it’s often “wisdom du jour.” But in Debunkery, I show that very often “common wisdom” isn’t so wise and is in fact harmful myth. Doing debunkery helps you see more clearly what the harmful myths are so you can better avoid making long-term costly errors.

 

Q: Many people worry now that consumers won’t spend enough to help the economy recover, but you say consumers aren’t as important to GDP as people think. Is that right?

 

A: This is an easy one to see right with debunkery because a lot of data exists around GDP and consumer spending. Consumer spending is over 70% of GDP--so it is very important! But consumer spending is also very stable--almost infinitely more so than people believe. It doesn’t fall much during recessions, so it needn’t come roaring back. I walk through the history of this in Debunkery.

 

Most of what we buy is boring--toothpaste, health care services, rent, etc. We keep doing that even in bad times. The biggest part of spending is services--which is huge and relatively stable. The smallest part of consumer spending are the big ticket, discretionary items you read about in headlines--like cars, appliances, vacations. And spending on those things does fall in recessions, but more stable spending on services and staples simply swamps falling spending on more discretionary items. In fact, in the last five recessions, consumer spending as a percent of GDP actually jumped, because consumer spending remained relatively stable while other parts of the economy--like trade and business spending—fell much more. Consumer spending doesn’t fall much, so it doesn’t have to bounce much. You can see that easily with Debunkery.

 

Q: Amazingly, you also say stocks can and should rise on high unemployment. Is that right?

 

A: Almost everyone gets this wrong, even though vast amounts of data are publicly available going back a long way, as I show in Debunkery. In every single recession since 1929, unemployment stays high and rises even after the recession ends. And stocks rise before recessions end--almost always--basic rule. Stocks lead the economy by a good notch, jobs lag by a huge notch.

 

This seems counterintuitive but isn’t. Think like a CEO would. You don’t want to hire before sales and profitability have recovered. You want to hire after you are confident you see a clear pick-up. And sales and profitability don’t recover clearly until the economic recovery gets underway. Plus, you probably had productivity gains through the recession, thanks to cost-cutting and just simply figuring out how to do more with less because you had to--so you may be able to handle increasing sales with a smaller staff. Then too, the unemployment number is wonky—it’s perfectly normal to see rising payrolls alongside rising or plateauing unemployment as people who had given up on their job search come flooding back to the job market, inflating unemployment numbers. All this adds to unemployment being a lagging, not a leading, market and economic indicator.

 

As I show in Debunkery, it would be weird, perverse, and inconsistent with all of history for unemployment to rise before the economy recovers. Your time would be better spent worrying about almost anything else--maybe reruns of the Beverly Hillbillies.   

 

Q: You encourage investors to do better with mutual funds by sending their spouse on a spending spree?

 

A: Yes! Many investors think their “no-load” mutual funds (i.e., mutual funds without a sales charge) are a cheap way to diversify. I have no issue with no-load mutual funds versus load funds. But it’s a proven fact that, on average, no-load fund investors do much worse than the funds themselves and they badly lag the S&P 500--and even lag investors who invest in funds with heavy loads. Why? Because no-load funds are convenient to trade, so they do it--much too often. They make moves at the wrong times, and that seriously hurts. 

 

The fee load fund investors pay up front--sometimes as much as 5%--serves as a behavioral spine. They trade far less, hold their funds much longer--don’t in-and-out at all the wrong times, buying high and selling low--so their performance over time is much better even including those outrageous load fund fees.  No-load fund investors on average hold their funds way too short a time for their own good because they trade them whenever they feel the urge, not having that behavioral “spine” the load fund investor feels.

 

What no-load mutual fund investors need is an artificial “spine” as a barrier to get them to trade less and hold longer.  So, my point is, buy no-load funds but set up a contract with your spouse first. Every time you trade them you must forfeit 5% to your spouse that he or she can do whatever they want with--to be blown on whatever frivolous (or non-frivolous) thing they want. The threat of a punitive spousal shopping spree can be just the discipline you need to trade less. And even over a period as short as 5 years, the benefit of sitting tight should easily outweigh the cost of creating your 5% artificial spine. It also motivates you to pick your funds more carefully.

About this edition

• Publisher: Wiley
• Publication date: 2010
• ISBN 10: 0470285354
• ISBN 13: 9780470285350
• Binding: Hardcover
• Edition number: 1
• Number of pages: 256