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Markets Never Forget (But People Do): How Your Memory Is Costing You Money—and Why This Time Isn’t Different Hardcover – Illustrated, November 8, 2011
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Q&A with Author Ken Fisher
You start the book with Sir Templeton’s famous quote, "The four most expensive words in the English language are, ;This time it’s different.'" Is "this time" ever different?
History doesn't repeat, not exactly. And the past cannot predict the future, but it is one good tool in determining if something is reasonable to expect. Investing is a probabilities game, not a certainties game. Nothing is certain in investing—all you can do is determine what a range of reasonable probabilities are.
In the same way, it's not a possibilities game. It’s possible the world gets hit by an asteroid and destroys life as we know it, but the far greater probability is no such terrible thing happens.
You can't develop a portfolio strategy around endless possibilities. You wouldn't even get out of bed if you considered everything that could possibly happen. Instead, as I show in the book, you can use history as one tool for shaping reasonable probabilities. Then, you look at the world of economic, sentiment and political drivers to determine what's most likely to happen—while always knowing you can be and will be wrong a lot.
You say bull markets are inherently above average. How so?
I interact with a lot of investors. And, amazingly, even many professionals don't get this—bull market returns are inherently above average. Most people get that long-term, stocks average between 9% and 10%. But that’s an average and bakes in big up years and big down years.
I show in the book annual bull market returns on average have about doubled the market’s long-term annual average. And early bull market returns historically have been even bigger. All that means is long-term investors can and should expect to experience downside. But if you’re long-term growth oriented and remain disciplined to a good strategy appropriate for you, downside gets swamped by the bigger and longer periods of market upside.
Stocks rise much more than they fall—I show this in the book. Yet people focus much more on downside, so they forget.
You say "ideology is deadly" in investing, but don't a lot of people prefer one political party over another?
Sure. Personally, I don't cotton to either major party. But most people do tend to have one party they like. That’s fine and normal. Where it becomes problematic is letting your party preference color your market views. Then, too, there are some profitable patterns investors may miss if they are blinded by ideology and don’t use history to overcome that.
One example, in 2012, we either re-elect Obama, a Democrat, or newly elect a Republican. If you have a strong alliance to one party or the other, you likely think it's good if your guy wins, but bad if the other guy wins. But if you check history, you know either outcome has typically been good for stocks. When we re-elect a Democrat, stocks have averaged 14.5%, but when we newly elect a Republican, they average 18.8% in the election year. I explain why in the book.
People's ideology blinds them. And because they don't remember even recent history, they don't remember this major pattern happening right in front of them.
Right now, many fear the next 10 years may end up looking like the 2000s, overall pretty flat. What do you say to people concerned about a "lost decade"?
They are fearful of something that’s never happened before in the US, not once. Those are bad odds to bet on.
First, making a forecast for a 10-year period ahead is close to impossible. In the book, I explain why. But briefly, in the near term, demand is the primary driver of stock prices because supply doesn’t move enough to matter. Longer term, supply shifts swamp everything else. And you can't make a 10-year forecast unless you know something about where stock supply will head 8, 9 and 10 years from now. I've never seen anyone even begin to address that.
Most important, flat or down 10-year periods for US stocks are historically rare. Then, too, every single 10-year period that followed was not only positive, but strongly positive. Can you get two back-to-back negative 10-year periods? Sure—but you better have a darn good reason why the period ahead will so strongly buck the odds. And you better have some new technology for forecasting 10-year returns because I’ve never seen one that has worked consistently.
From the Inside Flap
From internationally recognized investment expert Ken Fisher comes Markets Never Forget (But People Do), a well-reasoned, logical, data-driven and often entertaining look at the many ways investors' memories fail them. What's more, Fisher provides tools investors can use to begin improving their faulty memories--now.
No matter how big, new and scary something may seem, according to Fisher we've almost always been through something similar before. And if you can remember that, find those other times and learn lessons from them, you can know better how to react--or not react. You can know that it's never as bad, as great or as lasting as your faulty memory makes you think. Just remembering that can make you a better investor. Don't forget. Markets don't.
- Publisher : Wiley; 1st edition (November 8, 2011)
- Language : English
- Hardcover : 240 pages
- ISBN-10 : 111809154X
- ISBN-13 : 978-1118091548
- Item Weight : 15.9 ounces
- Dimensions : 6.3 x 0.88 x 9.3 inches
- Customer Reviews:
Top reviews from the United States
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Ken is a great interview and author. He is also a decades-long Forbes columnist. His compelling observations about the economy, politics and the role of history are central to the thesis of his book 'Markets Don't Forget - People Do'. The author expresses the role of personal bias inherent in decision-making and assumptions associated with making investments.
Ken provides a lot of empirical data to substantiate the facts - something many investors fail to acknowledge - even when unbiasedly expressed. Investing is essentially characterized as a plan of probabilities vs. possibilities. History is a lab of sorts where one can test a bias to determine cause and effect. Too, one's memory isn't usually as good as one thinks it is, particularly with regard to patterns of performance.
Simply, I hope to remember the data presented here as I listen to the economic and political talking heads through a different sort of filter - history. To ignore history is to expensively repeat mistakes and avoid profitable opportunities.
Top reviews from other countries
Básico por su simplicidad. No desarrolla complejas teorías. Retener lo simple es tremendamente dificil para muchos, y es la clave.
Reiterativo por que no da mas de sí y se repite un poco. Pero igual es a ver si nos lo aprendemos que falta hace.
Las tablas sobre que pasa en bolsa cuando gana un republicano o hay una crisis están bien. Aunque para mi con menos de cincuenta presidentes y con aun menos crisis, no tienen rigor estadistico. Eso si, en la tarotlogia bolsistica, todo el mundo mira las cifras de reojo, por si acaso.
Lo único que hay que hacer es seguir acumulando datos, de esta forma esta será una buena herramienta de prediccion de bolsa cuando la muestra sea mucho mayor.
Pero en definitiva, el libro esta bien y estoy satisfecho de habermelo descargado.