Ken Fisher’s Research into Behavioral Finance by John Szramiak was originally published on Vintage Value Investing
One of Warren Buffett’s favorite investment books of all time is Common Stocks and Uncommon Profits by Philip A. Fisher.

Buffett has credited this book as a great influence on his investing style. Philip A. Fisher (as well as Buffett’s business partner and Berkshire Hathaway vice chairman Charlie Munger) is the main reason why Buffett transformed from a “cigar butt” style value investor who invested in incredibly cheap, but low quality businesses, into an investor who only invests in incredible businesses with wide economic moats, sustainable business franchises, and significant returns on invested capital.

In other words, Philip A. Fisher influenced Buffett to switch from investing in good companies at wonderful prices, to investing in wonderful companies at good prices. And it was probably this one change that helped propel Warren Buffett into becoming the second richest person in the world.

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Ken Fisher Behavioral finance
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Introducing Ken Fisher

Philip A. Fisher clearly had a huge impact on value investing. However, his son, Ken Fisher, might be even more influential in the finance community than his father was.

American investment analyst Ken Fisher is both the chairman and founder of Fisher Investments. Fisher Investments is a money management firm with offices throughout California, Washington, England, and Germany that manages money for both high net worth individuals and institutions. Fisher Investments has $77 billion of assets under management with 5,000 private clients and over 175 large institutions.

Ken Fisher was educated at Humboldt State University, is the author of 11 books including The Only Three Questions that Still Count, The Ten Roads to Riches, How to Smell a Rat, and Debunkery, and has a net worth of $3.6 billion. Fisher also writes a monthly column in Forbes magazine and is the publication’s longest continuously running columnist.

In 2010, Fisher was named to Investment Advisor magazine’s “30 for 30” list of the 30 most influential people in the investment advisory business over the last 30 years.

One specific area of finance that Ken Fisher is known for is in the research of behavioral finance. Behavioral finance is an essential component of value investing. In fact, many of Benjamin Graham’s value investing ideas – such as Mr. Market, investing with a margin of safety, and relying only on numbers, analysis, and facts instead of emotions and forecasts – were really developed to combat some of the ways that investors’ own behaviors can negatively influence their decision making.

Ken Fisher has greatly contributed to the field of behavioral finance with many research papers and other writings on the subject. With this in mind, let’s take a look at Ken Fisher and his research into behavioral finance.

What is Behavioral Finance?

Let’s first take a look at exactly what behavioral finance is and some of the key thoughts behind it.

Behavioral finance is the study of the psychological, social, cognitive and emotional effects on decision making in economics and how it impacts factors such as returns, market prices, and the allocation of resources.

One significant area of interest in behavioral finance is how people respond in situations where there is no guarantee of a certain outcome. This is known as risk tolerance and is a vital factor that comes into play when people make decisions about finances.

In short, this area of study is concerned with the different behavioral factors that influence and drive decisions in the financial industry.

Ken Fisher’s Research into Behavioral Finance

One particular area of interest with Ken Fisher and his research into behavioral finance is with his book Beat the Crowd: How You Can Out-Invest the Herd by Thinking Differently.

In Beat the Crowd, Ken Fisher explores the psychological side of investing by taking a look at the thinking and resulting actions of the contrarian investor. This book benefits the reader in that it explores the herd mentality in investment decisions, where investors tend to make mistakes, and how to work against herd mentality as a true contrarian.

Fisher looks at how headlines have a tendency to influence the market and how the investor with a contrarian mindset is able to see this and understand it and make informed decisions by knowing when to tune out certain fads.

Beat the Crowd provides the contrarian investor with a strategy for successful investing and has been considered an important piece in the research of behavioral finance.

Here are some significant quotes from Ken Fisher’s book Beat the Crowd:

“In investing, the crowd is wrong much more often than right.”
“People must be right sometimes, must feel good sometimes, or we’d never have a herd. They would just give up. The occasional rightness fosters false confidence, reinforcing the crowd’s wisdom. It is plausible deniability for TGH [TGH stands for “The Great Humiliator” – it’s Ken Fisher’s nickname for the stock market]. It is how TGH repeatedly sucks the crowd in, makes them ignore negatives, then doles out maximum pain and suffering.”
“Different, not opposite. That’s the key to using professional forecasts—and the key to being a contrarian.”

As you can see, Ken Fisher has had a significant influence on the world of finance and particularly in the area of behavioral finance with his writings and research exploring the way that thinking, emotion and psychology influences decision making and how a smart, informed, contrarian investor can work against that.

Top 10 Ken Fisher Books

#1) Beat the Crowd: How You Can Out-Invest the Herd by Thinking Differently

Train your brain to be a real contrarian and outsmart the crowd.

Beat the Crowd is the real contrarian’s guide to investing, with comprehensive explanations of how a true contrarian investor thinks and acts – and why it works more often than not. Ken Fisher breaks down the myths and cuts through the noise to present a clear, unvarnished view of timeless market realities, and the ways in which a contrarian approach to investing will outsmart the herd. In true Ken Fisher style, the book explains why the crowd often goes astray—and how you can stay on track.

Contrarians understand how headlines really affect the market and which noise and fads they should tune out. Beat the Crowd is a primer to the contrarian strategy, teaching readers simple tricks to think differently and get it right more often than not.

  • Discover the limits of forecasting and how far ahead you should look
  • Learn why political controversy matter less the louder it gets
  • Resurrect long-forgotten, timeless tricks and truths in markets
  • Find out how the contrarian approach makes you right more often than wrong

A successful investment strategy requires information, preparation, a little bit of brainpower, and a larger bit of luck. Pursuit of the mythical perfect strategy frequently lands folks in a cacophony of talking heads and twenty-four hour noise, but Beat the Crowd cuts through the mental clutter and collects the pristine pieces of actual value into a tactical approach based on going against the grain.

#2) The Little Book