There are a handful of books which survey the march of history and its implications for the serious long-term investor in stocks. "Devil Take the Hindmost" by Edward Chancellor is one book for the times. You have classics like "Extraordinary Popular Delusions and the Madness of Crowds" and "Manias, Panics and Crashes" which have gone into updated editions for every cycle downturn of the Equity asset class.
A famous cover story on "BusinessWeek" (Now "Bloomberg Business Week") came out in 1987 which lamented with a rant that's now known as an epochal error - "The Death of Equities". Financial Writers have always found the obsession with Markets and Crashes as a soap-opera to expand the continuum of history of over 200 years of recorded market movements beginning with the late 18th Century till date. "Markets Never Forget: But People Do" is one more worthy addition to the literature on market history and the perspectives one can glean from the historical gyrations of stock prices. Who is the author? Ken Fisher, one of the few Investment Managers, who prides himself as a Forbes Billionaire Advisor for the Forbes Billionaire Club. Fisher has been the fourth-longest running columnist for Forbes Magazine and runs a firm - Fisher Investments. This is eighth book and its quite evident Ken Fisher can write well, weave facts and historical data points into a fluent narrative that is bound to encourage long-term stock investing. The timing couldn't have been better - its come at a time when the markets fear a Lehman-like moment and are getting psyched out of the cut-and-dry march of equity markets over the last five years.
Ken Fisher says that markets have always been volatile and there is never a dull moment in stock investing but one should learn how to overcome the behavioural biases that will creep into our memory and actions that tell us "This time is different" and we end up making the same mistakes that cost us money and time. He gives countless examples of moments in market history when people have shunned from the markets, got fooled by averages and generally got sandwiched between getting in and out of secular bear or bull markets. Ken Fisher gives fascinating, brick-by-brick tour of the American Stock Markets, the various phases of crashes and rallies punctuated by hundreds of mini-pulls of investor extreme reactions owing to government debt cycle ups and downs, corporate profitability fluctuations, and political bickerings. He infuses lot of authenticity by giving tabulation of all the returns, and the sharp movements of the markets in v-shaped curve, j-shaped curves, and v-w-shaped curves --that surprised even the most maverick forecasters of the day.
Ken says that investors fail to be right most of the time because they forget the past and even refuse to learn from the mistakes of the past. They get overwhelmed by greed or fear but also forget that being greedy or fearful didn't work out for them in the past. In the process, they get head-faked by what later turns out to be normal volatility - because they forget they've lived through volatility many times before. They over-react - either too bearish or too bullish- based on some widely dispersed media report that later turns out to be highly overstated or just plain wrong and often backward. Take for example, volatility. Ken Fisher says that contrary to what the media projects, the maximum volatility between these three asset-classes - Oil, stocks and a food commodity like Onion, was, surprise, witnessed in Onions, more than that of oil and stocks. Between 2000 and 2010, Standard Deviation for oil was 33.8% but for onions it was 211.4%. Contrast this with the SD of Stocks- a mere 19.41%. And then he constructs an argument, saying that there are other variables that are equally volatile- like inflation, government deficits, or GDP growth rates on a monthly basis - and the stock markets discount all of that and move on quite well.
What is the lesson here for investors? Ken Fisher tells us that a sense of market history is a powerful tool to help begin reducing your error rate and help begin getting better investing results. The book is divided into eight chapters with excellent examples and data tables. Each chapter highlights a dimension of history - of market averages, volatility of the asset-classes, traps in thinking, interface of politics with economics, rise and fall of bull and bear markets, and the interlinkages of the global markets. Ken Fisher is quite an intelligent and respected market commentator and a Fund Manager of repute. Few people also know that Ken Fisher is the son of the legendary of legendary Growth Investor Philip Fisher. Philip Fisher wrote the classic "Common Stocks and Uncommon Profits." It is still a must-read for any serious stock investor. Ken Fisher gives a reassuring book of market history whose revelations will bring joy to anyone investing in stocks for living or retirement. Even if there are no examples from Emerging Markets, the book is spirited and comprehensive.
"Markets Never Forget (But People Do)" by Ken Fisher. Wiley India Pvt Ltd. Price Rs.399.00, pp. 216.
