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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 – November 8, 2011

4.4 out of 5 stars 25 customer reviews

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Editorial Reviews

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Q&A with Author Ken Fisher
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

Why do so many investors make the same mistakes repeatedly—being too bullish or too bearish at just the wrong times? Because they forget. Forgetting pain is an instinct—humans have evolved that way to better cope with the problems of survival. But for the complex and often counterintuitive world of investing, it causes serious errors.

"This time it's different" are the four most expensive words in the English language (according to investing legend Sir John Templeton). Yet many investors routinely fall into the trap of thinking "now" (whenever "now" is) is different somehow. In Markets Never Forget (But People Do): How Your Memory Is Costing You Money—and Why This Time Isn't Different, four-time New York Times bestselling author Ken Fisher shows readers how their memories play (often costly) tricks on them—and how they can combat their faulty memories with just a bit of history.

This isn't to say history repeats itself perfectly. It doesn't—but a recession is a recession. Some are vastly worse than others—but investors have lived through them before. Credit crises aren't new, nor are bear markets—or bull markets. Geopolitical tension is as old as mankind, as is war and even terrorist attacks. Understanding how investors have reacted to similar past events can help guide investors in shaping better forward-looking expectations. The past never predicts the future, but it can reduce guesswork about what's ahead.

In this book, Fisher takes aim at some major market memory mishaps—like the idea stocks have become inherently more volatile or that wildly above- or below-average returns are abnormal. He shows how, early in every recovery, investors don't believe in it—often at a huge cost. And he shows how, in investing, ideology is deadly. Most important, he teaches how you can use history as one powerful tool to help begin reducing your error rate and help begin getting better investing results.

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Product Details

  • Hardcover: 240 pages
  • Publisher: Wiley; 1 edition (November 8, 2011)
  • Language: English
  • ISBN-10: 111809154X
  • ISBN-13: 978-1118091548
  • Product Dimensions: 6.3 x 0.9 x 9.3 inches
  • Shipping Weight: 1 pounds (View shipping rates and policies)
  • Average Customer Review: 4.4 out of 5 stars  See all reviews (25 customer reviews)
  • Amazon Best Sellers Rank: #190,677 in Books (See Top 100 in Books)

Customer Reviews

Top Customer Reviews

Format: Hardcover
Using historical data, the authors adequately identify behavioral conflicts stemming from the clash between emotion and financial facts. As investors swing from the pendulum of fear and greed, it becomes clear that we all own some personal biases regarding financial markets. In a quest to be our own financial hero, it is more common that we end up our own villain at the expense of performance.

If you love and seek an interesting view on hard data and facts, you should enjoy this book. It is a unique assembly of financial history with an emphasis on U.S. equity markets. The application of financial history allows the authors to demonstrate how susceptible we are to flawed behavioral finance actions. To be more precise; if you enjoyed the writing style and content of any of Ken Fisher's previous books, you should expect to enjoy and value this book.

The bad news is that this book repeats a lot of material and themes from Fisher's and Hoffmans' previous works. The good news is that this book repeats a lot of material and themes from the authors' previous works. As the title of the book appropriately implies; Markets Never Forget (But People Do), I found myself shaking my head at myself and thinking, "I should have remembered that because I read it before in their previous books", yet I did forget and was glad I was afforded a much needed reminder.

If you are looking for good nail biting non-fiction financial storytelling book a-la Michael Lewis, this isn't going to be your cup of tea. If you are looking for extremely valuable and rich financial data that is organized and summarized in a way that allows you to apply the history, you are in luck.
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Format: Hardcover
The key message of this book is that history repeats itself, but that the patterns are of so long duration that human beings fail to notice. The author has made this point before, but the value of this book lies in the examples (and maybe repeating the message).

TARGET AUDIENCE
It is an interesting reading if you follow the financial markets rather closely (at least a couple of times per week). The book is full of facts (mostly about returns) and that is why I don't think you will appreciate the book if you do not follow the financial markets closely.

CONTENT
The content of the book is good, but quite shallow. The author spends way too much time debunking uninformed newspaper headings. That would have been all-right if he would have added some more subtle points as well. The book has eight chapters and makes maybe two good points per chapter. In mind mind this is quite poor. However, the author is a proven "market guru" (see the CXO website's ranking) so the book still has value. (Ok, I am aware that somebody might object that just one good point could save you more than the price of the book.)

STYLE
The book is written in an extremely informal and verbose style. Personally, I don't have a problem with informality, but I hate verbosity. Think about the book as being somebody's verbose blog. Is there value in having the material in book form? That depends on whether you prefer reading on the screen or reading a book. However, I wish the author would have learnt from some of the blogs that write informally without being verbose and meandering.
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Format: Hardcover Verified Purchase
I first became familiar with Ken Fisher though Marc Pearlman's radio show 'Your Money Matters' [...]. Since then, I realized this is the same Ken Fisher whose investment firm sends me from time to time invitations to have my investment portfolio managed by his firm Fisher Investments [...]

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.
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Format: Hardcover
Many years ago money manager Ken Fisher with Super Stocks wrote one of the few useful books on GARP-investing. With the more recent The Only Three Questions that Counts he concentrated on the construction of a rational investment process. This time he zooms in on Behavioural Finance from a practitioner's perspective. The book is a cry to analyse and learn from history. Amen to that.

Fisher takes off from Sir John Templeton's combination of belief in entrepreneurship and his realization that most of the events we see today seldom differ in any material way from historical events, hence the quote "The four most expensive words in the English language are, `This time it's different.'" To be able to see how business creates value and prosperity over time and to put today's events in perspective one has to have a grip of history. Most of us think we do, when in reality we actually don't.

Not only do we forget prior events so that we don't learn from them. More importantly, we forget our feelings during those prior events. The effect of this is that we experience current feelings more intensely than we remember our feelings the last time something similar happened. The conclusion then is that today's events must be more important and unique than yesterdays. We lose perspective. By analysing history we can see more clearly and avoid walking into the same psychological traps time after time. "At its basics, investing is a probabilities game; it's not a certainties game." "[...] while investing is a probabilities game, it's not a possibilities game." Almost all tail events are possible but that doesn't mean you should invest into situations with bad odds. By "remembering" you can base investments on probabilities based on historical outcomes instead of personal gut feelings.
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