Taking a Closer Look at Ken Fisher’s Research into Behavioral Finance

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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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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

clostTrain 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 of Market Myths: How to Profit by Avoiding the Investing Mistakes Everyone Else Makes

clostExposes the truth about common investing myths and misconceptions and shows you how the truth shall set you free—to reap greater long-term and short-term gains.

Everybody knows that a strong dollar equals a strong economy, bonds are safer than stocks, gold is a safe investment and that high PEs signal high risk…right? While such “common-sense” rules of thumb may work for a time as investment strategies, Ken Fisher vividly demonstrates in this wise, informative, wholly entertaining book that they’ll always let you down in the long run. Fisher exposes some of the most common—and deadly—myths investors swear by, and he demonstrates why the rules-of-thumb approach to investing may be robbing you of the kinds returns you hope for.

#3) The Only Three Questions That Still Count: Investing By Knowing What Others Don’t

clostKen Fisher explains what the competition doesn’t know.

From investment expert and long-time Forbes columnist Ken Fisher comes the second ddition of The Only Three Questions That Count. Most investors know the only way to consistently beat the markets is by knowing things others don’t. But how can investors consistently find unique information in an increasingly interconnected world?

In this book, Ken Fisher shows investors how they can find more usable information and improve their investing success rate—by answering just three questions.

Packed with more than 100 visuals and practical advice, The Only Three Questions That Count is an entertaining and educational guide to the markets. But it also provides a useable framework investors can use now and for the rest of their investing careers. The key to improving investing results is daring to challenge yourself and whatever you believe to be true, and Ken Fisher explains how in his own inimitable style.

#4) The Ten Roads to Riches: The Ways the Wealthy Got There (And How You Can Too!)

clostThe Ten Roads to Riches takes an engaging and informative look at some of America’s most famous (and infamous) modern-day millionaires (and billionaires) and reveals how they found their fortunes. Surprisingly, the super-wealthy usually get there by taking just one of ten possible roads. And now, so can you! Plenty of books tell you how to be frugal and save, but The Ten Roads to Riches tells you how you can, realistically, get super-rich.

Throughout these pages, self-made billionaire Ken Fisher highlights amusing anecdotes of individuals who have traveled (or tumbled) down each road, and tells you how to increase your chances of success. Whether it’s starting a business, owning real estate, investing wisely, or even marrying very, very well, Fisher will show how some got it right and others got it horribly wrong.

  • Find out the right questions to ask when starting your own business-the richest road of all
  • Learn what Mark Cuban, Rupert Murdoch, and rapper Jay-Z have in common, and how you can emulate them
  • Discover how to avoid high-profile flameouts like the Enron guys and jailed plaintiffs’ lawyer Melvyn Weiss

Whether you’re just beginning to plan your financial future or well on your way, The Ten Roads to Riches can show you how to gain and, more importantly, maintain the wealth you want.

#5) Plan Your Prosperity: The Only Retirement Guide You’ll Ever Need, Starting Now–Whether You’re 22, 52 or 82

clostWhether you’re in retirement, just getting ready to retire, or 5, 10, or 40 years out, this book can help you invest smarter your whole life and yes, plan better for retirement.

Harmful mythology abounds about retirement investing. Many retirees or soon-to-be retirees have heard a plethora of advice. Take 100 (or 120) and subtract your age to get your equity allocation, put the rest in bonds or cash. Buy only bonds. Buy only high dividend stocks. Or some combination! Buy equity-indexed annuities or some “guaranteed” income product. All examples of a potentially harmful myth many folks believe to be smart, strategic moves.

Investors believe preparing for retirement requires a radically different set of tools or a dizzying array of products. Navigating the world of retirement products and services can be a full-time job. But investing for retirement is, in practice, not much (if at all) different from investing. In Your Retirement Plan, Ken Fisher will give readers a workable strategy to either develop their own retirement investing plan or work more successfully with a professional to increase the likelihood of achieving long-term goals while avoiding common pitfalls. The book will include easy-to-follow steps like

  • How to think, correctly, about investing time horizon.
  • How to better figure how much income you need
  • How to determine if a portfolio can provide that income
  • How to figure how much to save each year to achieve retirement goals
  • What pitfalls to avoid

In this retirement planning book that’s not just for retirees, Fisher will hand readers the tools and confidence they need to better plan for the future.

#6) Markets Never Forget (But People Do): How Your Memory Is Costing You Money—and Why This Time Isn’t Different

Markets Never Forget (But People Do): (Fisher Investments Press) by [Fisher, Ken]Sir John Templeton, legendary investor, was famous for saying, “The four most dangerous words in investing are, ‘This time it’s different.'” He knew that though history doesn’t repeat, not exactly, history is an excellent guide for investors.

In Markets Never Forget But People Do: How Your Memory Is Costing You Money and Why This Time Isn’t Different, Ken Fisher shows how and why investors’ memories fail them—and how costly that can be. More important, he shows steps investors can take to begin reducing errors they repeatedly make. The past is never indicative of the future, but history can be one powerful guide in shaping forward looking expectations. Readers can learn how to see the world more clearly—and learn to make fewer errors—by understanding just a bit of investing past.

#7) The Only Three Questions That Count: Investing by Knowing What Others Don’t

clostThe Only Three Questions That Count is the first book to show you how to think about investing for yourself and develop innovative ways to understand and profit from the markets. The only way to consistently beat the markets is by knowing something others don’t know. This book will show you how to do just that by using three simple questions.

In The Only Three Questions That Count, Ken Fisher challenges the conventional wisdoms of investing, overturns glib theories with hard facts, and blows up complacent beliefs about money and the markets. Ultimately, he says, the key to successful investing is daring to challenge yourself and whatever you believe to be true. Packed with more than 100 visuals, usable tools, and a glossary, The Only Three Questions That Count is an entertaining and educational experience in the markets unlike any other, giving you an opportunity to reap the huge rewards that only the markets can offer.

#8) Super Stocks

clostOne of the most successful investing books ever published, Super Stocks shows investors how to use innovative techniques and fundamental analysis for valuing stocks and predicting future profit margins.

You’ll gain valuable insight into Fisher’s original thinking for valuing stocks and predicting future profit margins. A pioneer in the use of the price sales ratio, Fisher regales readers with instructive tales of the businesses he invested in and profited from.

Super Stocks gives a historical perspective on how Fisher successfully researched companies and stocks—who he saw and what he asked—to get a better read on profitable returns.

“As rich in investment war stories as it is in knowledge.” -The Motley Fool

#9) How to Smell a Rat: The Five Signs of Financial Fraud

How to Smell a Rat: The Five Signs of Financial Fraud by [Fisher, Ken, Hoffmans, Lara]2008 and 2009 will be remembered for bear markets, a global credit crunch, and some of the largest investment scams ever. But these scams are nothing new, they’ve been repeated throughout history, and there will certainly be more to come. But the good news is fraudsters often follow the same basic playbook. Learn the playbook, and know how to ask the right questions, and financial fraud can be easy to detect and simple to avoid.

In How to Smell a Rat, trusted financial expert Ken Fisher provides you with an inside’s view on how to spot financial disasters before you become a part of them. Filled with in-depth insights and practical advice, this reliable resource takes an engaging look at recent and historic examples of fraudsters, how they operated, and how they can be easily avoided. Fisher also shows you the quick, identifiable features of financial frauds and arms you with the questions to ask when assessing a money manager.

  • Prepares you to identify and avoid financials cams that could instantly destroy your wealth
  • Contains examples that highlight how financial frauds are committed
  • Provides questions everyone should ask before entering any investment endeavor

With How to Smell a Rat as your guide, you’ll learn how to protect your interests and assets from unnecessary losses.

#10) Debunkery: Learn It, Do It, and Profit from It — Seeing Through Wall Street’s Money-Killing Myths

Debunkery: Learn It, Do It, and Profit from It -- Seeing Through Wall Street's Money-Killing Myths by [Fisher, Ken]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 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.

Ken Fisher Education

Here are some interesting fact’s on Ken Fisher’s education.

Ken Fisher received his education from Humboldt State University in California. He actually attend the school to study forestry, although he ultimately graduated with a degree in economics in 1972. Nevertheless, Ken Fisher is actually considered an expert on 19th century logging, and he has documented more than 35 abandoned logging camps in the northern Santa Cruz Mountains. Fisher also endowed the Kenneth L. Fisher Chair in Redwood Forest Ecology at Humboldt State University, apparently the first time a chair was devoted to a single species of tree. Citing contributions to the finance world and the ongoing study of redwood ecology, Humbodlt State recognized Ken Fisher with its Distinguished Alumni Award in 2007.

In 2015, Ken Fisher was appointed to the Board of Advisors of The Forbes School of Business at Ashford University.

Ken Fisher Net Worth

Ken Fisher’s net worth is $3.6 billion as of 2017. Fisher is on the 2016 Forbes 400 list of richest Americans (#184) and is on the Forbes list of world billionaires (#501). Moreover, Forbes has recognized Ken Fisher as a self-made billionaire. Ken Fisher’s net worth self-made score is 8/10, meaning Fisher is a self-made billionaire who came from a middle- or upper-middle-class background (like Mark Zuckerberg).

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