Never Enough Fisher

Ken Fisher is a name that EQUITIES readers should be familiar with. In our February issue, the prolific writer and gifted money manager spoke to us about his book, The Only Three Questions That Count. He’s writing a new book, still getting phenomenal returns for his clients, and expanding Fisher Investments throughout Europe. Plus, Fisher will be the guest speaker at EQUITIES’ Transatlantic Conference on September 28, 2007.

EQUITIES: What’s Fisher Investment’s return this year?

Fisher: We’re up about 9%. The nature of the market this year is up, up, up, and then down with a whack. And then up, up, up, and down with a whack. And sometimes the whack is two, three, four days in a row. Last year we had a real correction. This year we’re having another now, as of mid-August.

EQUITIES: Are we correct in that you’ve grown assets under management at Fisher Investments from $35 billion to $42 billion since we last spoke?

Fisher: We’re doing just fine, thank you.

EQUITIES: The last time you spoke with EQUITIES you said that this year’s global returns should be up 20 to 30%. Do you still think so in light of recent market weakness?

Fisher: Yes. Americans tend to underestimate how strong the stock market is because America’s lagging. Americans tend not to think globally, so they cannot see how strong the foreign market is.

EQUITIES: We heard you are entering the German market.

Fisher: We’ve acquired half of a German asset manager, and we’re going to be putting a lot of effort into ramping up our German operation. Germany is a market that is underserved, dominated by stupid banks, and we believe that most of the things that we do in America translate to Germany. In terms of the high-net-worth market, Germany is the second largest in the world. Germans are a little too pessimistic and careful, but they’re fairly rational, and if you can win them over, they become very loyal. It’s a great market.

EQUITIES: What’s the firm’s name?

Fisher: The firm was Grüner Asset Management, and it’s been renamed Grüner Fisher Investments.

EQUITIES: We loved The Only Three Questions That Count. When can we expect another book?

Fisher: I’ve got a new book that I’m working on. It will come out sometime toward the end of next year.

EQUITIES: Do you have a title and the subject?

Fisher: The Ten Roads to Riches. How people get rich.

EQUITIES: How do the books fit in? They are part of your marketing strategy, part of your service, and what else?

Fisher: Part of my old age. This may be difficult for your readers to intuitively perceive, but I’m coming to the point where I’m winding down my career. That is, I’m 56, so maybe I have 10 more good years in me. At this stage you start thinking more about things like legacy. Things like the book become my legacy. The book lives on after me. But it does link to the firm, it links to the way we think, it links to the way we do. You give every client a book, clients read the book, and they get more out of the books than non-clients because they read it with more seriousness and eagerness.

EQUITIES: What do you look for when you’re investing in the growth market?

Fisher: Well, you want one of several things. One is you want an area that inherently has money flowing into it, an area with a force driving the industry to grow. And so that could be healthcare, that could be stem cells, it could be the government deciding they want to spend money on something. That tends to be fickle, but it happens. On the other hand, you want to look at people that are committed to building more than just something that’s growing fast right now, people that are building a business that has a life unto itself and creates human capital.

EQUITIES: When will growth stocks, especially small ones, come back on top?

Fisher: The next cycle will be growth, but we’re still not to the end of this cycle yet. As long as we have this phenomenon of a positive earningsyield/ bond-yield gap, you have this tremendous power driving takeovers, occurring primarily and inherently among smaller and midsize value companies. Growth takes over when the earnings-yield/bond-yield gap closes because there’s no other place to go then. In the face of the recent market correction and fear of sub-prime mortgage problems leading to credit crunch, most commentators believe the takeovers and buy-backs will end, but after this correction has run its course, we will have another huge wave because the earnings-yield/bond-yield gap continues to be huge, justifying the transactions and making them profitable.

EQUITIES: We were fortunate enough to have recently spoken with Mary Schapiro. What’s your take on the consolidation? How will this impact your business?

Fisher: Much of the criticism of the merger is not valid because it argues that we’re going to have a decreased regulatory activity. In our society, regulatory structures are not the be all and end all of protection. The process of arbitration provides more protection. On the one hand, all around the world we’ve seen this pressure, in London, Tokyo, everywhere else to merge exchanges. The NASD has been marvelous fostering competition, and I have nothing but good things to say about Mary Schapiro. None of this can impact me or my clients in a negative way. We have the capability to trade all over the world, and globally there’s still plenty of room for competition.

EQUITIES: And what are your thoughts about the exchange mergers?

Fisher: There isn’t an alternative but for exchanges to merge because this business is going to end up going all electronic. It’s going to squeeze all the costs out of it, and if they don’t merge and get market share, they’re not going to make any money. Although when you look overseas, there are still quite a lot of non-electronic transactions, but that’s going to all go away.

EQUITIES: We know you have some critics out there who object to the direct marketing. What’s your response to that?

Fisher: Eat my dust. There are two types of critics. First are the people who don’t like receiving direct mail or don’t like advertisers clogging up what they’d otherwise prefer to get for free. They need to remember that if somebody isn’t advertising, they’re not going to get that content. The other people that are critical are idiots. These are people in the industry who come to a conclusion that says if you do all that marketing you can’t be very good at asset management. One of my criticisms of the industry is that most of the industry isn’t good across the broad spectrum of business disciplines.

EQUITIES: Your termination rate is incredible. What are you doing to help your clients remain that disciplined, and why is it that important to them and to your firm?

Fisher: First, it’s important because it’s a reflection of us keeping them happy. Second, getting a new account is expensive, so you don’t want them running out the door. We do things that bigger firms don’t do. For example, having a program where we take client seminars led by senior managers in the firm to the 70 largest cities in the country. No other firm does that. We also get our clients together in groups of about 12 for lunch with nobody from the firm there, so they can get together and talk. The power of that is amazing. High-net-worth investors inherently distrust financial services providers. They intuitively do not believe that a financial services advisor would allow the clients to be together unsupervised to compare notes. So when you do that you’re saying to the client, “We trust you.” The client’s response is that they trust us back.

EQUITIES: In keeping your clients happy, how important are returns as opposed to the other values you offer?

Fisher: Some people would say that there isn’t a rational justification for asset management fees because the client could get that by buying a passive index. But if you believe that, then you believe that capitalism doesn’t work because America has this huge market of people who are paying these big fees while getting below average returns.

EQUITIES: So what are they paying for?

Fisher: The service of getting advice, being told to keep trying, that there’s a good future ahead, all of those kinds of things. I don’t think there’s a right way across the industry to say how much of it’s returns and how much of it’s non-return service, but clearly the world pays a lot of fees for most of the world lagging the market any way you measure it. And, therefore, this non-return part is very important to people. It’s as important to people that they feel good and comfortable about how their money is being managed as the actual return that they get. A little more return with a lot more fret isn’t worth it to most people.

EQUITIES: From reading The Only Three Questions That Count, we roughly understand your method. Are there times when you put that all aside and just go with your gut?

Fisher: I think it’s impossible to not go with your gut every so often. Maybe it’s just impossible for me. You try not to, but at the end you have still got your gut.

EQUITIES: To what extent do you think that the growing Hispanic population or even the aging population has been priced into the market?

Fisher: There’s been in years past quite a lot of demographic discussion not so much about Hispanic but about aging baby boomers. I think that story went around heavy between about 2000 and 2004 so that it’s still in people’s minds. It’s not terribly important because markets only discount out about three to five years. And three to five years from now you still don’t have the baby boomers retiring yet. People often act as if markets discount out twenty years into the future, and they just don’t. A parallel example is all of the press that you hear recently about global warming. There are quite a lot of global warming stories. Over the next five years, the impact of global warming is quite minimal at most.

EQUITIES: So it’s premature to go long on alternative energy?

Fisher: I see that as a bubble. People pile into this, which has no real economics other than government subsidies, and it will probably blow apart. That doesn’t mean you can’t make money dealing with the stocks, but you’ve got to be very timing-oriented. Most people pile into that stuff thinking they’re buying something to hold for 20 years. You know when you think about a lot of the stocks that would be at your conferences, it’s very important for people to think it through very carefully. Are they buying the stock as a longterm hold, or are they buying the stock as something that they expect to go up and then will look for an exit?

EQUITIES: How do you find time to manage money, run your firm, and be such a prolific writer? Does Mrs. Fisher have to pull you away from the computer every night?

Fisher: Well, Mrs. Fisher works at the firm and has for decades, and she sits about 15 feet from me. So at the end of the day, Mrs. Fisher doesn’t have to ask, “What did you do today, honey?” An awful lot of people come home and they’re dead tired. They don’t want to hear the answer because they want to turn on the TV, have a beer, and go to sleep. We never have to do that because we already know what the other did all day. The other feature that may be difficult for your readers to appreciate is that on the one hand I’m a writer and I’ve been a writer for a long time. I’ve written the “Portfolio Strategy” column in Forbes for 23 years now. I write much more quickly than most people do, and I run a pretty good size firm with 1,000 employees that generates the ideas that I write about.

EQUITIES: And the books?

Fisher: The books do take a concentrated push. If you look at The Only Three Questions That Count, in the introduction I describe how Jennifer Chou and Lara Hoffmans did all the research and organization. Lara did a whole rough draft on everything. I would just meet with them once a week to talk about where it was going and then finally I went back and rewrote her writing. It takes less time than it might seem because I’ve got a firm to support me.

EQUITIES: Any final thought to leave our readers with?

. Fisher: When I was a boy, my father taught me to analyze businesses. Whenever he was analyzing a business, down the road of questioning he would always ask, “What are you doing that your competitors aren’t doing yet?” With the emphasis on the word “yet.” And that question implies you’re doing something new, something novel, and something that will force others to follow. It’s what all great firms do. And so from the time that I’ve been young, I’ve been fixated on the notion of what can I do that no one else is doing yet. That has allowed me and my firm to be a leader.

BY ANTHONY W. HADDAD & JONATHAN BERNARD