The long bull market will cool late this year, but not because of old age, renowned money manager Ken Fisher tells ThinkAdvisor in an interview. The cause: Uncertainty about the upcoming presidential election. What’s the good news? An upswing will likely kick in mid-2020, he forecasts.
The outspoken Fisher, executive chair and co-chief investment officer of Fisher Investments, which he founded in 1979, also opines about today’s biggest “dilemmas” for financial advisors, such as the issue of acting in the client’s best interest. Concerning that, he has a few choice words on variable annuities, about which products he dedicates plenty of space on his firm’s website.
The famed contrarian, 68, bases his market forecasts on historical data patterns and a career-long study of investor behavior.
In the wide-ranging interview, he advises FAs to seek “the uncomfort zone” when investing and provides five pointers when determining asset allocation (“Don’t get arrogant” is one).
Fisher Investments manages more than $107 billion in assets for 55,000-plus private clients and 175 institutions globally. The firm, whose ads are ubiquitous on the airwaves, in cyberspace and in print, has increasingly expanded over the last several years, with offices now in about 15 U.S. cities coast to coast and about a dozen other countries, including Abu Dhabi, Italy and Tokyo.
Famed for challenging the conventional wisdom, Fisher, in the interview, argues that the federal budget deficit and congressional gridlock are positives for buying stocks and that the ongoing discussion about a U.S. bond yield-curve inversion is fatuous.
The industry veteran, who stepped down from day-to-day management of his firm in 2016, penned Forbes’ Portfolio Strategy column for 32 years. He now writes weekly columns for USA Today and The Financial Times.
ThinkAdvisor recently interviewed Fisher, on the phone from company headquarters in Camas, Washington. He busted myths, proposed a way to reduce the deficit and argued that 2018’s brutal fourth quarter was an ideal time to invest in equities.
Here are excerpts from our conversation:
THINKADVISOR: People keep worrying: “How long can this bull market go on?” Is that obsession a waste of energy?
KEN FISHER: Yes. Biological senescence doesn’t apply to markets. Age doesn’t kill bull markets. Markets die either because people get euphoric or because big, bad things happen that nobody has pre-priced. We’re clearly not euphoric now. Could there be big, bad things that aren’t pre-priced? Yes, and one should think about those potentials.
What’s your outlook for the market for the rest of this year?
[An imminent recession] is crazy fruitcake talk! Historically, the third year of a presidential term is bullish. I expect this year to continue to have appreciation, partly fueled by the European Parliamentary elections coming up, which ripple over to America. [However], the third year typically slows down in the back part as you begin to get increased fear about how the election might look. But because of falling uncertainty midyear in the presidential election year, it typically picks up. I expect that pattern to largely follow during this year and next.
What can investors learn about the terrible market in the last months of 2018?
Just as the fourth quarter of last year was beating the hell out of people and causing a lot of them to become bearish, they should have been ever-more bullish. Now people are more bullish because there’s a V-shaped bounce-back, but it’s a little late to take comfort.
What’s the most significant aspect of investing?
The biggest part is: Are you in the market, or are you not in the market? In a bear market, if you’re not in, that’s huge. In a bull market, if you’re in stocks, that’s huge. The pieces of the market that you’re in count — sectors, countries, specific stocks. But they’re secondary and tertiary. Is it better if you can be in all the right places? Yes, but the most important part is: Are you in or out?
What’s the pressing challenge for financial advisors today?
The biggest dilemma is sorting out: Are you putting the customer’s interest first, or are you putting your own interest first?
There’s much less of, pardon my French, f— -the-customer mode in America now, but it’s still here. In Europe, there’s a lot more. But in an environment [U.S.] where fixed income returns are so low, it’s very hard to give the customer something that makes them overwhelmingly happy that gets a great return and pays a lot to the advisor.
Where does the mode you mentioned show up, and what are the implications?
A lot of fixed annuities are actually variables in disguise or cross-dressed. As a percentage of annuity sales, there’s less in variable annuities than there used to be, but there are still a lot of variable annuity sales.
Do you therefore think that something needs to be remedied when it comes to VA sales?
If you had the fiduciary standard, most of the bad annuities would go away — or else you would have successful lawsuits. One or the other.
What’s another major challenge for financial advisors nowadays?
A fundamental dilemma that investment advisors, broker-dealers and, to a lesser extent, insurance people have to deal with is that capital markets are pre-priced of all widely known information. So they have to think, “If my so-called professional peers agree with me that it’s got to be pre-priced, I’d better change my mind and come up with some different answer.”
What’s an example?
Right now, if everyone were saying “sell in May and go away,” it would have to have been pre-priced fully. By the time you read about it, a lot of people have already thought about it before they even opened their mouths, and therefore it’s pre-priced. “Sell in May and go away” is a falsehood to begin with.
Was release of the Mueller Russia report pre-priced?
Well, have you noticed any big market reaction to it?! The Mueller investigation had about 40 attorneys working on it and a whole bunch of other people working under them. They all talked to other people. Donald Trump had lawyers when he sent in his [answers]. Michael Cohen had lawyers.
If there were smoking guns, that would have been pre-priced because all the people on the inside and on the outside and all the people they talked to would have yakked about them. You don’t need that many leaks in the pipe to get the water to not come out the other end.
What else is a problem for advisors?
Taking comfort from the views of their customers, hoping that the customers and they can come to a comfortable agreement about what to do. But people need to seek the appropriate “uncomfort” zone.
What other issues do advisors need to pay close attention to?