Guest Author - Guido Deboeck

Yesterday I received a book in the mail that John Wiley & Sons mailed me for a review. Although I did not find many good investments books in the past year, my first inclination was to put this book aside till after the holidays.

Before I put it on the pile of things to do next year, I scanned the column on the flap, read about the author and then got intrigued by the title. “The only three questions that count: investing by knowing what others don’t” , written by Ken Fisher. Ken is a rich guy (297th on the 2006 Forbes 400 list) who manages money for rich people as Chairman and CEO of Fisher Investments. Titles do not impress me, but if someone manages $30 billion, I want to know more.

So I quickly flipped through the book in search of “performance” numbers. On page 405 I found a table that shows that Ken has not been doing badly…i.e. relative to the MSCI World Stock Index and even the S&P500. He does not come close to one of my favorite “jockeys”, another Ken, Kenneth Heebner, whose average over the past five years managing CGMRX was about five times what Ken Fisher did, but of course there are differences (fund size, objectives…) that make this like apples and oranges.

Ken’s performance numbers lead me to read the forward by James Cramer. A Forward is usually a page; Jim uses four pages to in essence say that Ken is his friend, has a good strategy that makes money, completely different from his (Jim is a stock picker while Ken thinks stock picking is the least important part…) and that Ken’s book “could very well revolutionize thinking about investments”. OK, Jim you could have said that in fewer words, but we know you…

So Jim made me curious what revolutionary thinking there may be in this book. I flipped to the last chapter and read “putting it all together”, skipping over all the technical stuff in boxes. In essence, I learned little that was new: choose your objective, your time horizon, choose a benchmark, analyze your benchmark’s components, make bets by over- or under-weight certain components (“based on things you know that others don’t”), blend uncorrelated securities, never bet the entire house… because you still can be wrong. These are all very solid ideas Ken, but none that I did not read or hear about in the 90s at the World Bank.

Following Chapter 9, there are Conclusions ("to say goodbye") where I found some more novel ideas. Ken talks about the relative rate of change; how our oldest ancestors saw little, our grandfathers, more; our fathers generation even more. After just completing a manuscript for a book about my ancestors (in which I use genetic genealogy to trace my DNA back to "my" Adam and Eve), I thought this was interesting. Ken talks about his success in managing money and challenges anyone to proof him wrong on the only three questions that count…

Now I was hooked to read what those three questions were. I read Chapters 1 to 3 that explain those 3 questions. Question 1: is there something you believe that is actually wrong? On page 7 plenty of ideas are listed that Ken debunks. We can all learn from this. Question 2: what can you imagine that others cannot possible imagine? Ken goes on and illustrates a few such ideas (globally weighted yield curve; the Presidential term cycle etc). Question 3: how is your brain processing information and biasing your thinking? Can you learn to consider big returns as luck; can you learn to accumulate lessons from stocks that made you loose money (“regrets” as Ken calls them)?

This stuff is hot! Radically different from Jim’s approach; from Bill O’Neil’s approach whose pattern-based stock-picking approach is touched upon; different from even Peter Lynch’s investment approach (buy stocks of companies that produce hot products). I won’t mention Warren Buffet, because Ken rightly pointed out that Warren is not a money manager! Ken’s book is 448 pages, contains lots of annexes, plenty of statistical and graphic presentations, is well written, and is fun to read. I love the definition of “poli-tics” (poli=many, ticks are bloodsucking insects).

On the night before Christmas, I zipped through 170 pages (Chapters 1-3 and 9) in a record speed I admit but learned some new ways of thinking about investments that I definitely want to practice in 2007. I also decided that I want to go and buy another copy right now because my son, who is working on a PhD in quantitative psychology, has some experience in the markets, needs to read this. Should you get a copy of Ken’s book? If you are a small investor, probably Ken’s book is a bit overwhelming but it definitely contains material that everyone could learn from (like shunning pride and accumulating regrets. making bets on things you know and other's don't…). If you are a serious investor, this book definitely requires your attention!

Get a copy and read it on Christmas!

Happy Holidays, Ken! Thanks for sharing.