Ken Fisher on Picking Stocks, Learning From P&G and Kipling

When AdvisorOne last spoke with Ken Fisher, just after the Japan earthquake and tsunami, and the nuclear crisis unfolding, he had just added to his portfolio weighting in Japan.

“Natural disasters don’t break markets—and so they’re an opportunity, but usually to the extent they’re an opportunity it’s pretty fleeting,” Fisher told AdvisorOne in an interview Monday evening. Fisher’s investment views carry the weight of the $44 billion his firm manages for its 25,000 clients.

The founder, CEO and CIO of Fisher Investments says “our views are very granular this year. We’re not [betting] as big as we have been in past years—sort of big fanatic bets. We think there won’t be such a thing overall this year as a trend to emerging markets—that emerging markets will break down by country.”

“This is a form of a picker’s year…including in America,” he adds. “This is a year we think America will do better than the world as a whole—and it has so far—but you’ve got to pick your shots in America pretty carefully.”

“At a 10,000-foot level we like technology and the parts of technology that are more new tech,” the game changers, “as well as materials, as well as industrials.” Fisher says his team is “starting to phase away from where we’ve been with very heavy overweights to consumer discretionary, and our material underweights are consumer staples, big pharma—although we’re increasing our weight to big pharma as we transit through the year—utilities and telecom.”

‘Organic Growth’

“The key in our thinking about pretty much everything right now,” according to Fisher, “is that we want to be moving to companies that have capability to generate fundamental, organic growth, or what you think of as natural growth—not growth from M&A; not cyclical effect, but actual, fundamental growth that comes from either new product or new market for existing product.”

“I think pretty much every bull market ends with a period where what’s perceived as both high quality and the ability to be independent from the cycle create a false image—but an image nonetheless—of being able to be above it all. This is why at one era when I was young we had the ‘Nifty-Fifty.’ And in the late 1990s we had not just tech but the super-cap effect, where the biggest stocks just did best because they were seen as high quality; that they could buck the economy—which, if you think of them in aggregate is a ridiculous notion, but at the time was a common notion,” he explains.

“From that temporarily comes an increase in multiples. Half of investing is fathoming reality and half of investing is fathoming what other people are going to think about reality before they do.” But Fisher says it isn’t that he thinks the bill market is over, yet, just that there are “some categorical rules that I believe in that don’t work all the time, but they work more often than they don’t, like: the beginning of bull markets tend to be led by smaller and more valuous stocks; the back part of bull markets tend to be led by bigger and growthier quality stocks.”

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