9 of 9 people found the following review helpful
A practical book that should be compulsory reading for so called financial experts,
This review is from: Debunkery: Learn It, Do It, and Profit from It-Seeing Through Wall Street's Money-Killing Myths (Hardcover)
Written in an informal style this is a practical book for investors wanting to improve their chances of success by avoiding common misconceptions. It is intended to be useful, enjoyable and informative, and it succeeds.
Ken Fisher is chief executive of an investment management firm that from 1995 to 2009 out performed the MSCI World Index and the S&P 500 Index. Ken Fisher's father, Philip Fisher, was also a successful investor, author, and an influence on Warren Buffet who acknowledges Ben Graham and Philip Fisher as having had major influences on his investment style.
This is not a book on how to select stocks but provides methods for testing the veracity of commonly held beliefs and debunks fifty of them.
It covers commonly held misconceptions, Wall Street wisdom, things "everyone knows," and lessons that can be learned from history (but haven't been learned) and what can be learned from thinking globally.
The author contends that markets are complex "probability games" rather than "certainty games"; that market prices adjust for things that are already known; and move in anticipation of expected future changes.
Fisher says investing tends to be taught as a craft where knowledge is passed down from graduate [business] schools, investment banks and brokerages, but the things that are taught and learned are already included in market prices.
To get an edge as an investor, Fisher advocates treating investing as a science and using the world as your laboratory to debunk common misconceptions. He recommends using the scientific approach of developing an hypothesis, testing, confirming, and retesting continuously.
As well as testing hypotheses, and treating statements in the press as hypotheses to be tested, he recommends analyzing past data to discover patterns. When a statement is made, ask: "Has it happened before? With what consequences? How often?"
In all, Fisher recommends eight methods for debunking conventional ideas, and gives fifty examples of widely held ideas that don't stand up to scrutiny.
Among the myths that Fisher debunks is the belief that high levels of government debt lead to ruin. History shows that for over a hundred years when Britain was at the height of its power, national debt touched over 250% of GDP and consistently exceeded 100%.
To his credit, Fisher encourages readers to turn his debunking methods on his own examples. Like all of us, Fisher is subject to human frailties of perhaps seeking evidence to confirm his own beliefs.
For example, he says on two occasions on page 52 and later on page 76, that there is no evidence for price momentum in stock prices. This is curious since there is evidence: Fellow Forbes columnist, Mark Hulpert, in January 1996 mentioned several examples ranging from The Value Line Investment Survey to academic research; and research since then including studies by James O'Shaughnessy that reach different conclusions to Fisher.
Fisher, like all of us, would be well advised to following the advice of Douglas Adams: "See first, think later, then test. But always see first. Otherwise you will only see what you were expecting. Most scientists forget that." Confirmation bias is one of the biases mentioned by Fisher. Being aware of confirmation bias is a step in the right direction, actually avoiding it is more difficult.
I think this is a good practical book that is useful for investors and for everyone trying to make sense of political debates about economic matters. Where ever possible we should test things for ourselves using empirical evidence rather than relying on conventional wisdom. Fisher provides some simple yet useful techniques. Debunkery should be compulsory reading for so called financial experts and media commentators.