The Only Three Questions That Still Count: Investing By Knowing What Others Don't

The Only Three Questions That Still Count: Investing By Knowing What Others Don't

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Product Details

ISBN-13: 9781118115084
Publisher: Wiley
Publication date: 04/10/2012
Edition description: Revised
Pages: 368
Sales rank: 1,278,502
Product dimensions: 6.20(w) x 9.10(h) x 1.30(d)

About the Author

Ken Fisher is best known for his prestigious "PortfolioStrategy" column in Forbes magazine, where his over 27-year tenureof high-profile calls makes him the fourth longest-runningcolumnist in Forbes's 90-plus year history. He is thefounder, Chairman and CEO of Fisher Investments, an independentmoney management firm managing tens of billions for individuals andinstitutions globally. Fisher is ranked #263 on the 2011 Forbes 400list of richest Americans and #736 on the 2011 Forbes GlobalBillionaire list. In 2010, Investment Advisor magazine named himamong the 30 most influential individuals of the last threedecades. Fisher has authored numerous professional and scholarlyarticles, including the award-winning "Cognitive Biases in MarketForecasting." He has also published eight previous books, includingbestsellers The Only Three Questions That Count, The TenRoads to Riches, How to Smell a Rat, Debunkery andMarkets Never Forget (But People Do), all published by Wiley.Fisher has been published, interviewed and/or written about in manymajor American, British and German finance or business periodicals.He has a weekly column in Focus Money, Germany's leadingweekly finance and business magazine.

Lara Hoffmans is a content manager at Fisher Investments,managing editor of MarketMinder.com, a regular contributor toForbes.com and coauthor of the bestsellers The Only ThreeQuestions That Count, The Ten Roads to Riches, How toSmell a Rat, Debunkery and Markets Never Forget (But PeopleDo).

Jennifer Chou graduated from the University of Californiawith a BS in finance. She was a research analyst of global capitalmarkets and macroeconomics at Fisher Investments.

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Table of Contents

Preface ix

Acknowledgments xix

1 Question One: What Do You Believe That Is Actually False? 1

If You Knew It Was Wrong, You Wouldn’t Believe It 1

The Mythological Correlation 8

Always Look at It Differently 15

When You Are Really, Really Wrong 21

2 Question Two: What Can You Fathom That Others Find Unfathomable? 31

Fathoming the Unfathomable 31

Ignore the Rock in the Bushes 32

Discounting the Media Machine and Advanced Fad Avoidance 33

The Shocking Truth About Yield Curves 38

What the Yield Curve Is Trying to Tell You 49

The Presidential Term Cycle 57

3 Question Three: What the Heck Is My Brain Doing to Blindside Me Now? 67

It’s Not Your Fault—Blame Evolution 67

Cracking the Stone Age Code—Pride and Regret 72

The Great Humiliator’s Favorite Tricks 85

Get Your Head Out of the Cave 87

4 Capital Markets Technology 95

Building and Putting Capital Markets Technology Into Practice 95

It’s Good While It Lasts 100

Forecast With Accuracy, Not Like a Professional 105

Better Living Through Global Benchmarking 113

5 When There’s No There, There! 131

Johns Hopkins, My Grampa, Life Lessons and Pulling a Gertrude 131

In the Center Ring—Oil Versus Stocks 136

Sell in May Because the January Effect Will Dampen Your Santa Claus Rally Unless There Is a Witching Effect 148

6 No, It’s Just The Opposite 155

When You Are Wrong—Really, Really, Really Wrong 155

Multiplier Effects and the Heroin-Addicted iPod Borrower 163

Let’s Trade This Defi cit for That One 170

The New Gold Standard 175

7 Shocking But True 185

Supply and Demand . . . and That’s It 185

Weak Dollar, Strong Dollar—What Does It Matter? 200

8 The Great Humiliator and Your Stone Age Brain 213

That Predictable Market 213

Anatomy of a Bubble 221

Some Basic Bear Rules 229

What Causes a Bear Market? 244

9 Putting It All Together 251

Stick With Your Strategy and Stick It to Him 251

Four Rules That Count 257

Finally! How to Pick Stocks That Only Win 274

When the Heck Do You Sell? 281

Conclusion: Time to Say Goodbye 289

Transformationalism 290

Appendix A: Causal Correlations and the Correlation Coefficient 295

Appendix B: News You Can’t Use 299

Appendix C: Greater Fools 301

Appendix D: I Hate Funds 303

Appendix E: Annualized Versus Average 307

Appendix F: The Wizard of Oz and an OZ of Gold 309

Appendix G: 1980 Revisited 313

Appendix H: Popular But Problematic 317

Appendix I: Covered Calls—Covering What? 321

Notes 323

About the Authors 329

Index 331

Interviews

1. The Only Three Questions That Count really resonated with investors when it first published. What made you decide to update?

As I wrote in my 2011 book, Markets Never Forget, particularly following big bear markets, investors tend think "now" is different somehow. That problems we face are unique and insurmountable somehow. But folks always think that, and they're always wrong—we just forget.

Following the 2008 credit crisis and bear market and the huge 2009-2010 boom off the bottom, I thought I could revisit the questions to show, first, details change, but human behavior doesn't—not fast enough. And second, to show that if you have a good strategy aimed at knowing what others don't, that can work no matter what the market environment, what just happened or how much people think the world has changed. Nothing works 100% of the time, and things that worked once stop working then start working again later. But if you have a good, scientific method aimed at knowing what others don't—that should serve you well, always. And in updating the book, it was amazing how well the questions and all the examples I used held up.

2. The financial world has changed quite a bit since 2007—new laws and new regulations. How do the three questions still matter in the new financial landscape?

I'd argue the financial world is always changing. Sometimes new regulations are big, sometimes small. There are new innovations constantly. The three questions hold up because they aren't static. They don't rely on rules of thumb that maybe worked a long time ago but now are worthless. They are flexible and form a scientific method helping you see the world more clearly, no matter how much regulations change or new innovations are introduced.

3. Why would someone who bought the original book need this updated edition?

I've updated nearly every chart and table in the book and most all the data. Plus, there's some updated commentary based on the most recent market cycle that obviously wasn't in the first edition. I've edited it to be a tighter read and a better tool, so readers of the first edition might find something more useful or more powerful in this one.

4. What do you mean when you say that the only way to beat the market is by knowing what others don't know?

I mean exactly what finance theory says is true, and what is taught in every classroom and in every professional internship but most people seem to forget when faced with the real world. The only way to bet and win more often than not is knowing something others don't. If you don't know something others don't and make a market bet, you might be lucky sometimes and right but probably more often unlucky and wrong. That's not a strategy for long-term investing success.

5. The world is more interconnected now than ever before. How has this changed the way people approach investment decisions?

In my mind, this is part of a long innovation evolution and in many ways is good. It means there's more information moving faster, which can add to transparency.

But for many investors, the non-stop interconnectedness results in nonstop noise—most of it nonsense. But much of the nonsensical noise looks to many like wisdom—it can be hard for folks to weed through the nonsense to find something useful. If you can do that—ignore the noise—there's so much more you can know now that others don't. But ignoring the noise is a hard skill and most don't try developing it.

My sense is if most folks ignored their TVs and computers for a solid year, they'd have much better investing results than they would have otherwise. They'd be less tempted to make investing moves just for the sake of moving, and that alone can improve results.

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