Last week in an exclusive interview with AdvisorOne, Ken Fisher, founder and CEO of Fisher Investments in Woodside, Calif., talked at length about his investing outlook prior to Japan’s devastating earthquake and tsunami and nuclear plant crisis.
On March 16, as the humanitarian and economic effects of the crisis were still being gauged, Fisher updated the in-depth interview by telling AdvisorOne that he had made some changes to his portfolio holdings.
Fisher said that he had “increased weight in Japan and picked up some other things, mostly technology, on the presumption that things tied to [Japan] will” improve faster than many people think.
In the firm’s regular “weekly commentary e-mail, we said we think this is largely a tragedy that is being expanded in the media.”
“Rarely do people think they’re hysterical when they really are,” Fisher said, railing at media coverage of the unfolding tragedy in Japan—especially television. The story, he said, was being “reported as worse than things there really are.” The media needs to be “responsible about how they are reporting this—TV is fanning the hysteria.”
In last week’s interview, Fisher, typically an uber-bull, said he had shifted his forecast from a strong bull market in stocks to a flat one, dubbing 2011 a stock picker’s year. In another turnabout, Fisher, who's firm manages about $43 billion, has switched from a focus on emerging markets stocks to U.S. growth equities.
Developer of the price/sales ratio in the early 1980s, Fisher, 60, has been Forbes Portfolio Strategy columnist for 27 years. His latest book is Debunkery: Learn It, Do It and Profit from It (Wiley-2010).
Here are excerpts from Part II of the interview.
Your thoughts on big cap vs. small cap?
We’re moving from what has been, for some years, small-cap leadership to the start of a big-cap phase. The thing that scares me, though, is that right now there are too many people who favor big-cap.
Do you ever invest in ETFs?
Yes, but not much. I prefer to own the underlying securities if I can. Because this is a pickier year, the more macro-oriented an ETF is, the less useful it probably is. So within, say, emerging markets, you need to be choosier: Some individual countries might do really well, but some might do really badly.
What’s your biggest overall concern about the market?
Emerging markets countries might raise rates too fast. Those economies, which make up 27 percent of global GDP, have been on a tear. I don’t want to see their central banks, which aren’t all that good, become heavy-handed. There’s fear they might jerk too hard and choke off growth. That would be bad. And it’s not impossible.
What are your expectations for the bond market?
This is not a year when you’re likely to do very well by owning bonds. I expect that market to be relatively flattish. No fireworks, positive or negative.
But what about all the worries over muni bonds?
I don’t’ see a reason for them to do really well; nor do I see a big disaster that will take the rest of the bond market down. A lot of people have morphed last year’s fear of the PIGS [Portugal, Italy, Greece, Spain] into fear about muni debt. That’s fear of a false factor because it’s not going to happen. But that’s positive because the fear is already in the marketplace. So when the bad thing doesn’t happen, the fearful become less fearful — and that’s a little bullish.
What’s your outlook for the economy?
It will continue to do just great. U.S. and global GDP are at all-time highs. Nobody seems to recognize that. Corporate sales and earnings are stronger than the dickens. What isn’t doing well is the statistic we call unemployment. But that’s never had predictive power; it’s always been a late lagging indicator.
What about the housing situation?
An unfortunate part of the world that doesn’t have much teeth. It’s already priced into markets. It’s not getting a lot better; it’s not getting a lot worse. And it’s really yesterday’s story.
What effect will rising oil prices have on the market?
I’m in favor of that because I’m overweight energy. Temporary- or intermediate-term shocks may push the price higher for some period. But when the economy is strong, we can take extraneous shocks. The time you can’t take them is when the economy is weak.
What do you think of the SEC’s recommendation that all financial advisors be held to a fiduciary standard?
Probably a good idea because then the broker-dealer side can say, “I’ve got it, which puts me at the same level as an RIA. So why do you trust that RIA more than I?” But it’s all a wash: Within the BD world, you’ve got people ranging from marvelous to people that aren’t. People who aren’t will continue to be “aren’t” whether there’s a fiduciary standard or not.
How would you assess the performance of the SEC?
It gets a bum rap. The notion that the SEC is going to catch all kinds of financial industry criminals before their scams blow up or are reported in a lawsuit is a standard you wouldn’t impose on policemen in regard to normal criminals. That’s not to say there aren’t things the SEC could improve. But people think it should protect them from what otherwise is a buyer-beware world. The entire nature of investing is buyer-beware.
What advice do you have for advisors when interacting with the SEC?
Be “open kimono” [no secrets], give them whatever they want, welcome them in, be friendly. If you’re’ doing everything more or less right, you don’t have anything to worry about.
Any other advice for FAs?
I encourage them to be more consumer-learning focused. There are lessons to be learned from consumer product companies, like Procter & Gamble. Advisors should think of [their business] as an endless process of consumer learning because you can’t really satisfy consumers with your services if you don’t understand them better.
A final recommendation for FAs?
If a client comes in saying, “Bill Gross, or Ben Bernanke, or whoever, just said such-and-such. What do you think about that?” don’t attack the messenger. Deal with the message. It’s in the advisor’s and the client’s best interest because when you attack the messenger, you diminish the high-minded quality of the advice you’re providing.