I am not a big fan of the ubiquitous Ken Fisher ads everywhere you look on line; They are way annoying. There can be little doubt that Fisher has frequently been too bullish (he’s looking for a 10-40% rally based on bond yields not rising this year)
However, it would be a mistake to dismiss Fisher out of hand. I find that he is often very insightful, particularly when it comes to having a good overview on various investment concepts. And his take on one of my favorite subjects, investor’s self awareness and blind spots, is particularly astute.
A recent speech by Fisher was titled "The Only Three Questions That Count."
What are these questions?
1. What do you believe that’s actually false?
2. What do you know that others don’t?
3. What the heck is my brain doing to blindside me now?
Before you read the answers, think about that for a while. Thy are very interesting questions;
Here are his answers:
1. What do you believe that’s actually false?
Answer: Beware
popular opinion. It is never “investable,” even when it is correct.
That’s because the market has already discounted popular opinion.2. What do you know that others don’t?
Answer: Be honest. Only invest when you have such an advantage.
3. What the heck is my brain doing to blindside me now?
Answer:
There is always a temptation to let popular opinion dissuade you from
acting on your own proprietary knowledge. It’s hard to run alone.
Fascinating stuff. Thanks, Rich and Ken.
Source:
Ken Fisher on Stocks in 2006
Rich Karlgaard
May 02, 2006
http://blogs.forbes.com/digitalrules/2006/05/ken_fisher_on_s.html
Nice rules, but I don’t know if any investors, including pros, are truly capable of answering them. It would be equivalent to finding the person who leads a sinless life.
And it’s not actually far away from the thinking of our current secretary of defense, who famously said:
“Reports that say that something hasn’t happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns — the ones we don’t know we don’t know.”
Barry,
This is a little off topic, but I wanted to ask you about the VIX. The VIX is the worst option trading experience I have had. Now I admit I do not do a lot of option trading, but I felt the market was overpriced and thought there was a good chance for a pullback, so I bought the VIX 12.50 May call that you had mentioned. I only put a little bit of my mad money in it and until recently I thought it was going to basically be a 100% loss. Being it was just mad money, I was fine with the loss for the protection.
But what a difference these last few days have made. The VIX popped up and went as high as $14.26 on Friday. So I would have thought my VIX $12.50 Option would be in the money by at least $1.76. In fact, I would have thought it would have a little premium on top of its intrinsic value, so I would have expect the option to be worth over $1.75. Which would mean I would have gone from about a 100% loss to a nice gain.
But the VIX closed on Friday around $1.00. This is over $1.50 less than of its true value with no premium.
Now if this was a regular stock option I could just exercise the option and sell the stock. Please comment if I am wrong on my calculation and is there any way to lock in my profit.
Thanks in Advance
Robert
It is an interesting twist on what used to be considered philosophy [remember that people? the pursuit of Truth and Knowledge before it was over-run by the Huns seeking insider tips?]–what do you know? How do you know it? Maybe you don’t really know it (like those Huns) but only believe it or less, suspect it?
Luckily (and with no help from the Contemplative Set) we are past that navel gazing stage, that stumpification of refusing to take action without exhausting ourselves with questions (Surely The President is right about not negotiating with himself.)
But is it ” facinating”?
Robert doesn’t think so.
I’m with him. Where’s the next insider tip?
Hmm. I feel a twinge of devil’s advocate coming on…
If someone believes something that is actually false, they don’t know it’s false. Otherwise, why would they continue to believe it–unless they are intentionally deluding themselves.
The first question as Fisher phrases it would / should logical refer to self delusion, i.e., “What do you believe on a conscious level even though, subconsciously, on a deeper level, you know it to be false.”
Intentional self delusion is interesting because it is just about as ubiquitous as Ken Fisher ads. People routinely and constantly pull the wool over their own eyes for all kinds of reasons, some of them even for legitimate purpose.
Also, re popular opinion: it may not be investable, but it sure it is tradable. And one could argue that it is investable too, as long as one is careful: see Soros’ and “riding false trends until they are discredited.” People forget that the crowd is not always wrong; they are always wrong at turning points, a critical distinction.
Second question: ugh. What does that mean, “others don’t know?” What could an investor possibly know about a public company that others don’t know? Unless he is saying, what do you know that the majority of others don’t know. But even that has too much hair on it, because it is way too vague, and it is also possible for conviction to stand in for ‘knowing.’
That is to say, if you believe something with strong conviction, and other investors ‘know’ it but don’t share the same conviction level as you, or ‘know’ it but have some doubts, then you can load up when they don’t. Then there is also the matter of ‘knowing’ critical disciplines of risk control and position management, which can give you an edge vs the crowd even though plenty of others ‘know’ that stuff too.
Third question: aaargh, Ken, you’re talking your book pal. Let’s rephrase that answer: “There is always a temptation to let 32 billion dollars run from the long only side dissuade you from objectively considering your own freakin’ research.” Who really and truly runs alone?
That reminds me of two pet peeves: 1) people who randomly reference an opposing viewpoint as ‘contrarian’, i.e., “Hey, you guys all disagree with me, that must be a contrarian signal in my favor,” and 2) people who use the “lone wolf” excuse for rationalizing a poorly thought out opinion. It’s good to go against the crowd, but only when there is a high quality reason to do so. It’s good to have strong convictions in the face of adversity, but only when those convictions are resting on a firm foundation of high quality analysis. Folks often paint themselves as the Lone Ranger when it’s convenient, and forget the high quality part. This goes back to intentional self delusion again…
Sorry, didn’t mean to rant. Maybe I’m just getting back at Ken for all those stinkin’ ads I can’t get away from. A SHOCKING PREDICTION! And the guy is in my mailbox too…
http://www.dailyspeculations.com/Letter/bacon.htm
p.s. check out these excerpts from Robert Bacon’s Secrets of Professional Turf Betting. Now THIS is some damn good stuff. Eat your heart out Ken…
This is a bit off topic but it falls into the “magazine cover” indicator. I remember when Ford introduced the Excusion but really didn’t think about it. That was about the same time as the Economist cover “World Awash in Oil”. If there was a 2000 model Excursion, that would have been roughly fall, 1999. A helluva bottom for oil. Who’d believed it at the time?
http://autos.msn.com/research/vip/default.aspx?make=Ford&model=Excursion#used
Now this headline. Plus a cover on US News and World Report on oil. Guessing we see a pretty strong retracement in crude. JMO.
http://www.newsvine.com/_news/2006/05/12/195207-general-motors-to-end-hummer-h1-production
Apart from whether crude will or will not retreat, the increased profusion of contrarian signals in recent years is helping me to develop a little theory.
In a nutshell, this theory argues that contrarian signals are useless in a vacuum, but have potential use when applied to one’s own pre-existing body of analysis. That is to say, if you see a contrarian tell in an area you haven’t done your homework on, it’s probably not worth paying attention to, because you don’t know how it fits in. But if you’ve done your homework, and you have a pretty good idea of the puzzle pieces, then a contrarian observation can have value within the context of what you already know, because you have sufficient means to “vet” the signal and interpret it within context.
The problem with assuming that all contrarian signals are useful is that half of them probably aren’t, especially now that the media has ‘wised up’ to some degree. The average reporter might be a dumb bunny, but he or she certainly doesn’t like being perceived that way. And so now you have the phenomenon of magazines and news outlets going ‘against the grain’ in terms of prevailing trends far more often than they used to, because no one wants to get the booby prize of calling the top or bottom by mistake.
As Robert Bacon observes, “…if the public play ever did get wise to the facts of life, the principle of ever-changing cycles of results would move the form away from the public immediately.”
Not to beat a dead horse but Robert Bacon is to horse racing as Jim Cramer is to stock picking. I read Bacon years and years ago (first edition). Since Bacon there have dozens and more who have done far more analysis and have far more facts at their command than he ever did. The absolute truth of horse race betting is that all odds win according to their percentages with one exception. What this mean is that all 9-1 horses will win approximately 10% of the time, all 2 to 1 horse will win 33% of the time. The only exception is the odds-on (way overbet) favorite – it wins far more often than its odds suggest it should. This has been going on since the beginning of time and Robert Bacon’s conspiracy theories be damned.
As far as Fisher – fahgedaboudit. What do YOU believe that is actually false? That Fisher knows what he is talking about would be a good start. CXOAG had some very good articles regarding “experts” a few weeks ago. Everyone should review them.
John,
Just to clarify, I think there is a difference between philosophical quality and statistical / informational quality. A statement with high philosophical quality is one that has value in terms of the connections and reflections it inspires. Like a kaleidoscope–when you look into and through the statement, how many interesting combinations / patterns / ideas / reflections of thought do you see?
In my view, Bacon’s observations have extremely high philosophical quality in terms of their use as ‘mental models’ when applied to markets / thinking about markets. By the same yardstick, I was less than impressed with Ken Fisher’s observations because their philosophical quality was low, i.e. they are interesting questions on the surface but the answers provided were simultaneously muddy and shallow, rather than deep and clear.
A difference between philosopical quality and statistical / informational quality is that statistical verification or even the reputation of the speaker isn’t necessarily what’s important in the first case. Bacon may not have had a ream of statistical data to back up his observations but that doesn’t make his observations any less profound when applied to markets.
Similarly, the philosophical value of a Ken Fisher statement doesn’t rise or fall on who Ken Fisher is or how much money he manages or what he has accomplished. It’s either insightful or it ain’t (and yes, quality is often in the eye of the beholder). People of low or no stature have profound insights from time to time, and far more frequently, people of high stature and learned degree often proffer blah insights or even downright insipid ones.
From Fibtimer.com weekend report: “The chart of the NDX is truly awful to look at. The NDX has broken several support levels and odds favor continued declines over the coming weeks. If we keep moving lower the SPX portion will quickly follow to the bearish side”.
I’ve always thought that Ken Fisher was a smart guy, but I can’t see investing with someone who works so hard at gathering assets.
Several years ago, I requested their “free market report” not knowing that I was signing up for 2-1/2 years of phone calls from his marketing staff. They continued to call me every couple of months after I told them that I was happy doing it myself. Most investment advisors out there wouldn’t have tried so hard to sign me up anyway as I’m not a multi-millionaire. Haven’t heard from them in a couple of years but I will never request their “free report” again.
–Joel
trader75 – agree – problem is this – Bacon said – trainers/owners try hard at 3 to 1 and pull their horses at 2.5 – 1. That is as misleading as Cramer saying Sell Sell Sell XYZ on Tuesday and Buy Buy Buy (with sound effects) XYZ on Wednesday (which he has done). Bacon has neither technical nor philosophical merit because his book is jam packed full of bad information mixed in with a dollop of common sense that makes it sound as if it is authorative.
And isn’t that the point of this post? What do you believe that is actually false?
My point is this – it is hard to answer that question because BS can come in many sweet tasting flavors. But at the end of the drink it is still BS.
Thank you Trader75 and others. Great posts to read with my Sunday morning coffee. Thoughtful stuff.
John,
>>>> CXOAG had some very good articles regarding “experts” a few weeks ago. Everyone should review them.
I’m not familiar with CXOAG and I would like to read the article you are referring to.
Can you give me a link?
Thanks.
John,
Fair enough–I haven’t gotten my hands on Bacon’s original work, and I’ve never bet on the ponies at the track… so I have no reason to doubt if you say Bacon’s observations are mathematically suspect.
With that said, I think the ‘mental models’ that Bacon presents are very powerful in terms of understanding markets, irrespective of statistical aspects.
I am not dissing statistics in any way here, just pointing out there is value add in thinking about situations creatively, and I would argue that Bacon’s observations can help a market participant do that.
Winning and losing stocks behave very much like winning and losing horses in a pari-mutuel system; sometimes a good horse is a bad bet and vice versa. Inconsistency kills at the track, and it kills in the markets too. Most investors, like most race-horse bettors, lose more than the vig and the odds suggest they should; on balance, they perform worse than random. Bacon’s observations on the average bettor getting tangled up in the hidden inconsistencies and contradictions of an ostensibly simple game are golden; those words capture the essence of trading, and poker too for that matter: a game that looks childishly simple on its face but can take a lifetime to master.
As for Bacon’s observation on winning horses getting reined in to lower their odds, you are the authority in terms of how much that applies to the track. Maybe it’s bullshit. But in the investing world, there is very much a parallel there to “washouts” where the strong hands intentionally “rinse out” the weak ones, waiting for a good stock to retrace and clean out the stops before they buy back in at lower prices. Same in reverse on the short side; when a bunch of little traders get short RTH because ‘everyone knows’ the consumer is in trouble, what is RTH more likely to do? This kind of thing happens all the time.
One man’s trash is another man’s treasure… I grade this kind of stuff on a “food for thought” curve, and my digestive system functions differently than yours. Burp…
Ken fisher pioneered the price/Sales ratio- a notion that sales is critical to business succes. His Father pioneered the use of scuttlebut- finding thing out about companies by talking directly with company employees. Both Ken and Phil concluded that a great sales force is a critical component to business success and growth.
Ken Fisher markets himself the way he does because he believes in a great sales force.
He believes that letting non-employees ie; other brokerage firms market you for a fee is a conflict of interest. He calls himself the Dell computer of Financial services.
Guess what, it appears that he is. Annoying adds or not we should tip our hat to Fisher for pioneering a different way to market his services. Investors in Fisher save money that normaly gets paid to brokerage firms by other MM’s.