Illustrated Lessons from Financial Cycles and Trends

I’ve mentioned this before at RealMoney, but in early 2000, I was doing some serious thinking about investing. I decided to e-mail Ken Fisher a question that he had touched on in one of his Forbes pieces. That began an e-mail dialog that forced me to ask hard questions about how I did value investing. Personally, I was surprised how much time he was willing to waste on me, but I had read the three books that he had written up to that time, Super Stocks, 100 Minds that Made the Market, and The Wall Street Waltz. I had a good idea of how he approached investing.

He challenged me to throw away the CFA Syllabus and think independently — to focus on my own competitive advantage. That led me to analyze what had worked and failed in my prior efforts in value investing, and that led to what would become the Eight Rules. I did well in the prior era, but much better after my discussion with Ken Fisher.

One more note before I begin the book review. He told me that if something is known, it is not valuable for investing. I have modified that rule to be, “If something true is relied upon by many investors, it is not valuable for smart investors. If something false is relied upon by many investors, it is valuable for smart investors to bet against that.”

The Wall Street Waltz takes you on a graphic tour of economic and financial history. Using beautiful old charts created by multiple sources, he uses them to describe market action in the past, and what they might imply for the present. The original version, of which I have a copy, was written in 1987. The new edition updates Ken’s comments to 2007.

The charts provide a springboard for Fisher to explain a wide number of concepts:

• Why preferred stocks are suboptimal investments. (Chart 31 — learned that first hand a a little kid as I saw my Litton convertible preferred crater.)
• How economically linked Canada is to the US (Chart 15)
• The value of P/E ratios for the market (Charts 1&2)
• Why you shouldn’t panic over bad political/disaster news. (Chart 24)
• How inflation is correlated internationally (Chart 49)
• Gold preserves purchasing power in the long run, but that is about it. (Chart 57)
• Stocks create value in the long run, despite short/intermediate-term fluctuations. (Chart 88)

I could go on. I chose those pages randomly. There is a wealth of knowledge here. I would like to close with a timely page that I targeted, Chart 64 — Unemployment and the 1 Percent Rule. The stock market tends to rally after the unemployment rate rises 1%, though the challenge is timing when to sell, and I don’t know what the rule should be for that. After the last unemployment report, the rate is more than 1% over the recent low. If correct, it is time to be a buyer, though what is true on average is not always true in specific.

Most investors don’t benefit from an understanding of economic history, which gives a broader skill set for analyzing current problems. This book is an aid in gaining understanding of economic history.

Full disclosure: If anyone enters Amazon through my site and buys something, I get a small commission. Your costs are not increased. This is my equivalent of the “tip jar” and so, if you like what I write, and need to buy through Amazon, please enter Amazon through links on my site.

Comments

[archman82011]

Yeah, like Ken Fisher needs any more money than he already has.

Between his firm's constant 24/7 web ads, abusive mailings to people (like myself) whose names he bought from brokerages, his annoying firm promo videos that appear before someone else's web videos, the world could use a little less of Ken Fisher and his asset gathering promos.

The man is already rich enough, and quite frankly is nothing more than another asset gatherer, trying to make himself even more wealthy by providing info, that anyone can get if they do some research.

[notphaedrus]

abusive stream of mailings to be sure and repeated telephone solicitations to my home, both during the day and in the evening, which ceased (at least for the moment) after repeated demands from me that they desist. The solicitations have been so aggressive and unseemly, I cannot imagine that I would ever use his firm.

[TA]

I too have been bothered by his marketing machine but it still doesn't detract from the value of the book. If I had one complaint it would be that only some of the charts are updated in the appendix. Seeing older charts does still get the point across but how hard would it be to update every chart in a new edition?

[User 213578]

I want to thank ken for the free binoculars he sent me last april. i am going to start reading and watching the free dvd he sent as soon as winter sets back in the north country. in the mean time there are a lot of fish to catch and firewood to gather. nice summer to everyone from alaska.

[cynic69]

I am always suspicious of book writing experts like Ken. I think the really smart investors don't have time to write books. They are too busy workiing on their tans on a beach in the south of France.

[Le French]

Knowing what other people don't know is certainly great, but unless you are an insider or great at anticipating future trends you won't bridge the knowledge gap. Even IF you are able to transcend today's world of constant ambiguous news' flow and think ahead of the crowd, well you will still lose your shirt betting against the big crowd (not in number but the one with the money) because there are the ones moving the market.

[Borgie One]

Yes, I've been bothered by Ken Fisher trying to promote his company and get 2% or more in fees of what they manage. One big complaint on my part, but it maybe little on other peoples, is that they send a huge envelope to you with one piece of paper in it. I'm not a tree hugger, but I recognize waste when thousands are receiving the same huge envelope with basically nothing in it. These are the same guys that are flying around the world in their private jets while the little guy tries to be a good citizen to the environment.

[theinvestingspeculator]

Fisher is on the Forbes 400 richest list so he must be doing something right. Investing today is different because oil is running like we have never seen it. At $134 a barrel it is still cheap, I will tell you why @
theinvestingspeculator...

[Spread Betting Trader]

While knowing what other people don't know is definitely an asset, the key is having the courage of one's conviction to act decisively on that information. Besides, in most cases, even acting isn't enough...you need to act ahead of others! This is not a trivial statement. If you buy a stock on the basis of supposedly 'unknown' but relevant information, then it would only gain in value if (over time) others become aware of that information and begin to come onboard, buying into the same stock. i.e. there needs to be some catalyst that would help disseminate that hitherto hidden information in order for you to capture value. This partly explains why such 'unknown' info never stay unknown for long. that is, it makes sense that once Fisher believes he has found some unknown information and acted appropriately, he should then write books and send out his famed marketing machine to help disseminate the info and help him reap the rewards!

[Mafeking]

All the complaining about Fisher - surely this is just noise, as is the quasi conspiracy theories that Fisher distributes information after the event to help him enrich himself..

Sure the salient point is whether following Fisher's advice, assistance, insights or recommendations would be beneficial - that is, produce above average returns. Alas my understanding is that would not be the case.

[User 202445]

I went to one of his seminars and was sitting in about the 3rd row. The place was filled twenty to twenty five rows deep. Anyway Ken puts on the presentation, incredibly abrasive guy, talks about his rivalry with his father, and sometimes offers some insights in between sparring with members of the audience. About 3/4 of the way thru I turn around to look at a questioner and literally 98% of the people sitting behind us had left. The man was 100% jerk.