Insightful and blunt, Ken Fisher is an enigma. He shuns conferences for independent advisors and industry associations. Yet he is arguably the best known independent financial advisor targeting high-net-worth individuals. Twelve of the $15 billion managed by Fisher Investments comes from high-net-worth individuals. His firm dropped 15 million direct mail solicitations in 2002 targeting America’s wealthy, and Fisher further spreads his gospel via his “Portfolio Strategy” column in Forbes magazine. I chatted recently with Fisher about his background and investment philosophy.
Who are you? My father was a big deal in the investment business. Once upon a time, he was of material significance. So if you read The Intelligent Investor by Benjamin Graham, you’ll see that he suggested reading Phil Fisher. Warren Buffett always said my father was a prime mentor of his. He was one of just three people who ever taught the graduate investment course at Stanford’s business school. Anyway, when I was a kid, I worked for him. We could not get along in business, though. I am not mentally constituted to be an employee. And when I was young, my social skills were not that good; I was prone to being too blunt. So I went off on my own. Officially, I started this firm as a sole proprietorship in 1973. Then I had a partnership with my brother before going back to a sole proprietorship. My wife and I have been married for 33 years and she is the CFO of the firm. I’m 52, but I’ve written three books, been published hundreds of times, and have scholarly and professional pieces. I’ve paid my dues.
You work out of your home and your employees work on the grounds? We have three grown kids and used to need a house big enough for them. But they’re all grown and gone. So we have a large corporate facility and we have an apartment upstairs. It’s a 12-acre, 20,000-square-foot facility. It is our headquarters and about 200 of the more than 500 employees of Fisher Investments work here. It is located just outside of Woodside [California]. We have another facility about 20 minutes away in San Mateo, and it is a little larger and more than 200 people work there. We are the prettiest investment management firm in the world. Our headquarters is south of San Francisco, on top of the north end of the Santa Cruz Mountains, at an elevation of about 2,000 feet overlooking the Pacific Ocean on one side and the north end of the redwood forest on the other. Sherri and I live in an 1,800-square-foot apartment upstairs. It’s like the Chinese laundry.
You are a separate account manager. Isn’t that an expensive way to invest for your clients? Why not do it in mutual funds? We don’t like co-mingle funds. Mutual funds are slimy. If you think of wealthy people, anything you can do in a mutual fund, wealthy people can do better directly. Funds are expensive, tax-inefficient, and have structural overlaps with the way people use them. The 1940 Act does not envision that people would take a $10 million account and spread it among 10 funds. Funds were supposed to be for someone with a small amount of money, to give them diversification and professional management. If you have enough money, it is cheaper and better to invest directly. You get customization, tax advantages. I am critical of the way most investment advisors use funds.
What account minimum do you have, and how many clients? We have about 10,000 clients. Our firm’s minimum is $500,000. Our institutional management arm has minimums as high as $10 million.
What is your investment style? Whatever we need to be. We don’t believe in any of the styles. When I was younger, I was trained by my father as a growth guy and then I rebelled. We do have an institutional small-cap product because people want to buy that. We have a domestic equity product where we rotate between styles, and a foreign product where we rotate between styles.
How did you get to $15 billion? We think of portfolio management more like a manufacturing operation, and we run our firm more like Procter & Gamble or IBM than a Wall Street firm. For example, our salespeople sell and do nothing else. Our service people service and do nothing else. Most of your readers have fewer employees and they perform multiple functions. Most financial planners are selling and render planning advice and manage portfolios. One of the reasons most firms with $100 million or $200 million under management can’t grow beyond that point is that a couple of people at top are doing too many different things. They can’t find an individual to replace a third of a principal. What they do is not scalable. Everything we do is scalable because we have specialists in sales, marketing, and research. At one level, the way we got $15 billion under management was marketing and selling. A track record of good performance is necessary but insufficient. Our industry acts like a track record is everything. The reality is, like IBM knows, you need to make great computers and be good at selling them. Our industry has a schism where people who want to do manufacturing think sales is bad and people who want to do sales often think manufacturing is bad. If you look at the long history if IBM, it is rare they had the very best computers. What they combine over decades is the best of all features a business needs to succeed. Advisors may want to think more like IBM than a traditional Wall Street firm.
Tell me about the evolution of the firm. I was a kid when I started the firm, don’t forget, so how many people were going to give me money to manage? In the 1970s, I did everything in the world. I was creating financial plans. In the ’70s, most financial advisors could not figure out compound interest. You could make money simply by doing simple math for people. The first 10 years after founding the firm, I staggered around accomplishing little. I wrote a newsletter, did single-stock research, sold research, packaged venture capital deals, and more. By 1980, I had maybe $10 million under management, and I decided to focus on things that made me the most money, one of which was money management. It wouldn’t be until 1986 or so, when we managed about $60 million, that those ancillary activities were actually shed. Between 1986 and 1989, we doubled every year. The focus between 1985 and 1995 was basically on institutional business. In that period, we went from $60 million to about $1.4 billion. In 1995, we began a renewed effort with high-net-worth individuals. And between 1995 and 2001, the prime push was in high-net-worth individuals. In the last two years, we’ve been clicking on both cylinders.
How did you start your Forbes column? I’m in my 20th year. I was lucky. I was writing my first book, and read a book on how to market your book. It said that you want to get dust-jacket endorsements. Then, I happened to I meet Jim Michaels, the editor of Forbes. I asked if I could send him my book. He said, “sure.” The book I read about marketing your book advised to send only two pages–the best two pages in your book. Jim said send more. I sent a chapter. He asked for proofs. I sent them. They used my ideas for a story about price/sales ratios and quoted me. Jim asked me to have lunch, so I flew to New York. At lunch, I pulled my first column out of my pocket and showed it to him. He said it was terrible. I pulled out a second. He said that was terrible. I pulled out a third. He told me to stop. He then told me what to rework, and later accepted it. He mentored me and edited me personally for 15 years.
Should advisors spend time trying to write–maybe columns for local papers? Writing is good. The reality is they have to be good enough at writing to do it, though. Most people of reasonable intelligence can learn to write reasonably well. They can learn the same way I did. My wife found a local business writer for a small local paper. Basically, she was hired to teach me to edit myself. Great writing is really rewriting. It’s about putting yourself in the reader’s shoes. You don’t have to be Hemingway, but you will be okay once you get that concept.
How has direct mail helped build your business? We do direct mail and Internet ads. We sent about 15 million direct-mail pieces in 2002. Direct mail for most advisors won’t be effective. It is an art form. At first, money won’t be even close to spent optimally. The most important thing you learn is that what you believe in does not matter. If you look at two direct marketing pieces, almost everyone has an opinion of which should work better. But your opinion doesn’t matter. It’s how they do. Success depends on a combination of art and statistics. You drop mail, and measure the response. You keep testing until you find what works. But what works for us may not work for others. In direct mail, you have an offer and a package–how it looks. One package may work well with one offer but not another. Big, oversized manila envelopes work better for us in some pieces, for instance, but may not work for others. You find what works through statistical control and experimentation. You spend a lot ineffectively, and most independent advisors cannot make direct mail work. Our experience with Internet ads is about the same; it’s just a different medium. It’s safe to say that in money management, we do more direct marketing than anyone in the world. It is a good way to spend money and keep the state of California from taking our money in income tax. Direct marketing generates lead flow and future clients while being a tax-deductible expense that drives profits to zero and builds value of the firm.
So you don’t like paying taxes? Fisher Investments is a non-profit corporation. I don’t mean that we are a registered not-for-profit. I mean that our goal is not to make any money. We thus deprive the state and federal government of income, accomplishing a moral goal of mine while putting money back in the firm. So we spend all that we make on items that are legitimately tax-deductible. The goal is to make no profits other than what we need for liquidity. We plow everything back into the firm. Last year, my income was $250,000. I don’t need more. And the firm made no profit. My firm is valuable and I am the controlling shareholder. So I am not poor but don’t have a lot of cash and don’t need to spend a lot of money. I drive a ’98 Volvo. I don’t need a lot of stuff. I am not a material person. I do like to walk in the woods.