December 21, 2010
In his latest book, Debunkery, Ken Fisher achieves his goal of dispelling many common investment myths and, in doing so, offers his philosophy on how individuals should manage their money. While most of the advice he offers is unequivocally correct, he also makes egregious errors on some serious matters.
This book is intended for retail investors and not advisors, so what I offer here are some points to guide you in your conversations with clients who may have read it.
I’ll look first at the meritorious advice Fisher offers and then turn to his more questionable suggestions.
Debunking conventional wisdom
Fisher’s book consists of 50 short chapters, each of which debunks a common investment myth. For example, in chapter 25 he counters the adage, “sell in May and go away,” with compelling logic and supporting data. I expect virtually all who will read this article have long ago dismissed this myth, but I’m equally certain that many individual investors believe in it. Here is one of the instances where Fisher does a valuable service.
Along similar lines, Fisher convincingly debunks investing strategies tied to which political party is in power, the value of the dollar, budget deficits, tax rates, and other macroeconomic data.
That said, Fisher writes in such an excessively informal style (e.g., “That should kill ‘sell in May’ forever. Debunkenasia it!”) that he often misses the chance to state his overarching point precisely and clearly: Unless an investment strategy is backed by a sound economic rationale, there is no reason to expect that its past results will continue in the future.
In chapter 11, “A Good Con Artist is Hard to Spot,” Fisher does an admirable job of warning investors about the key trait shared by Madoff and other frauds: They lack an independent custodian. “Not every adviser who holds assets is a Ponzi schemer, but every Ponzi schemer I’ve ever seen has had direct access to the cookie jar,” Fisher writes. “Don’t give it to them.”
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