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399 of 413 people found the following review helpful:
5.0 out of 5 stars
Wonderful book with financial and life lessons, January 15, 2007
Full disclosure: I am a financial advisor. And I've read Kenneth Fisher's column in Forbes since he started writing it 22 years ago.
This is a superb book. The sub-title is "Investing by Knowing What Others Don't" and it is the best book I've read on investing and asset managment in years.
The author is an investment manager based in California, who also writes a monthly column in Forbes magazine. He's a pretty successful guy, ranked 297 on the latest Forbes 400 Richest American's list. Yup. That's successful allright.
His father is Philip Fisher, also a pretty famous investment manager, who was known for recognizing good companies, and then buying and holding their stock - sometimes for decades. Lastly, Fisher has an interesting philanthropy - redwood trees. He has endowed the only university chair dedicated to a single species of tree.
On to the book. Here's the only negative: Fisher has a slightly cute sense of humor, which I found a little annoying at times.
But the pluses are huge.
The three questions are: (1) What do you believe that is actually false? (2) How can I fathom what others find unfathomable? And, (3) What the heck is my brain doing to blindside me now?
Each of the first three chapters is dedicated to explaining one of the three questions. The first chapter debunks many "facts" about markets that are actually wholly or partially incorrect myths. Here are two examples: High P/E markets are riskier than low P/E markets (P/E stands for price-earnings ratio and is one of the most fundamental valuation metrics for stocks) and a weak U.S. dollar is bad for stocks.
In the second chapter Fisher makes the point that the only way to beat the financial market is to know something the market doesn't know, or at least ignores. This is pretty basic. The market (prices of stocks, commodities, currencies, bonds, etc) has already discounted in the underlying pricing known knowledge; to outperform the averages, you have to know something not widely known.
The third chapter is how our mental processes frequently work against us in trying to sort through meaningful data and relationships. Fisher refers to the market as "The Great Humiliator" (TGH) where we are constantly at risk of allowing our emotions, like pride and regret, get in the way of rational decisions. For example "confirmation bias" where we seek evidence confirming our preset notions and reject contradictory evidence. And of course very applicable to other aspects of our life, besides our finances.
The remainder of the book - six chapters plus a short and interesting conclusion - expands on the three questions. The chapters have titles like "Capital Markets Technology", "Shocking but True", and the last chapter "Putting it all Together."
Much of the analysis is quite brilliant. For example I loved his examination of U.S. budget deficits, and why they are not negative for the financial markets - or for the country. COULD they be a negative - YES - but only if we do certain stupid things in managing our fiscal and monetary policies. He step by step builds a powerful case that, if anything, the United States is underleveraged - we could easily manage more debt. He gives several examples of debt-free developed countries with stagnant economies and lower standards of living.
I could go on and on. Get the book if you want a mind expanding read about managing your money (And your life! Much of what he says has applicability to all facets of life). Their are 42 pages of appendixes, including showing his audited records as a prognosticator in his Forbes column and the performance of his money management firm.
His record shows that Fisher doesn't just talk the talk; he has walked the walk.
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187 of 199 people found the following review helpful:
4.0 out of 5 stars
Learned a lot, January 6, 2007
I am an individual investor who has read dozens of books on investing, the markets and economics. I have read Ken Fisher's columns in Forbes but I have never acted on his recommendations. Fisher has turned many Wall Street myths on its head. For examples: high PE ratios do not necessarily imply reduced stock returns; one should think about earnings yield rather than PE ratios and plot earnings yield against 10-year bond yields to decide on value; budget surpluses can actually dull stock returns; trade- account- and budget-deficits are all potentially good for the stock market; an inverted yield curve is not necessarily bad for the stock market; the global yield curve is important, etc. The 3rd section is about behavioral finance. A better take on behavioral finance is Beyond Greed and Fear by Shefrin. Fisher talks about the importance of international investing and he does not believe it really matters whether the dollar is strong or weak. He thinks that if you have 10 year time horizon, you should be 100% in equities. He has low regard for gold and commodities. He thinks high oil prices are not necessarily bad. His opinions are backed up with well researched data, with lots of graphs and statistics which is easily understandable even for a no-Math brain like me. I learned so much from this book.
I do have some criticisms. There is a lot of redundant material and some repetition. Editing could have been better. He criticizes Warren Buffett's Berkshire Hathaway for underperforming the S&P in 2003, 2004, and 2005. But Buffett had a fantastic return over the long run. In the appendix of the book, between 1996 and 2006 Fisher's annualized return was 11.5% after fees. From 1995 and 2005 Buffett's average annual gain was more than 18% after taxes. (This does not include 2006 when Berkshire Hathaway had a blockbuster year gaining almost 25%!) Which is why I have 25% of my portfolio in this one stock, violating Ken Fisher's rule of not having more than 5% in one stock.
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70 of 72 people found the following review helpful:
5.0 out of 5 stars
A Great Book about Markets and Investing, February 4, 2007
Whatever philosophy about investing you may hold, Ken Fisher's "The Only Three Questions That Count: Investing by Knowing What Others Don't" will enrich your thinking and improve your performance. Make no mistake: this book is not just good; it's great!
As the title implies, to get to the nuggets of truth--and superior performance--that others miss, you must ask three questions: what do you believe that is actually false; what can you fathom that others find unfathomable; and what the heck is my brain doing to blindside me?
Fisher addresses these questions with wit and verve, writing in a breezy and provocative style that makes the reader want to keep turning each page. Fisher's argument begins with the efficient market hypothesis--that all information known by the investment community is already priced into the markets. Absent trading on inside information, which is illegal, how, then, can an investor beat the market? The answer, Fisher says, is to ask the first of the three questions and realize that much of what is believed by others is simply not true.
Fisher shows this by testing the mathematical correlation between commonly held beliefs and subsequent investment returns. Are high P/E markets riskier than low P/E markets? Will government deficits lead to economic collapse? Will rising oil prices seal the doom of common stock returns? Analyzing the historical data, Fisher shows that each of these beliefs--and many others--is a myth.
Once an investor accepts that the conventional wisdom is mistaken, he can next ask Fisher's Question Two and fathom what others find unfathomable by ignoring the noise and focusing on events and relationships that do correlate.
The third and final step in Fisher's methodology (what the heck is my brain doing to blindside me) helps investors to avoid typical mental errors--overconfidence, hindsight bias, confirmation bias, and order preference. Many readers will be familiar with this material, which draws on the realm of behavioral finance, but Fisher's presentation is both crisp and enjoyable.
At the conclusion of the book, Fisher instructs the reader on how to use the three questions to build a portfolio that beats the market. Distilled to its essence, his advice is to adopt a benchmark, think globally, and overweight or underweight when asking the three questions gives the investor an advantage over the market.
The book is a treasure trove of keen insights. One piece of advice I found particularly helpful was Fisher's observation that the market offers just four possibilities: to be up a lot, up a little, down a lot or down a little. Only in the situation where an investor reasonably concludes the market will be down a lot does it pay to alter one's asset allocation and disfavor equities, since over long periods of time, the market moves inexorably higher, and in the other three scenarios, efforts to time the market may cause the investor to miss equity upsides when the downside risk was minimal in any event.
Occasionally, Fisher's unabashed praise of deficit spending and freewheeling capitalism seems a bit over the top, sounding more like a paean to a Republican political platform than sound economic analysis. Still, Fisher is convincing in his argument that our fears about these policies may be misplaced and that they may promote the growth of the economy and boost stock markets worldwide.
After reading the book, you will never again take any conventional investment advice as a given--and you will be better off as a result.
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