Personal Wealth Management / Market Analysis
Fisher Investments' Founder Ken Fisher Explains the Dangers of Breakevenitis
Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher discusses the dangers of misidentifying a bear market. Ken believes the current downturn in stocks is characteristic of an archetypal correction versus the beginnings of a long lasting bear market. In light of recent market volatility, Ken encourages investors to remain patient and avoid trying to time the market.
Ken explains how investors may be tempted to sell stocks during downward volatility, but exiting the market now could be a mistake. According to Ken, investors who try to time the market risk missing the inevitable rebound that typically follows a swift, steep market decline. He also unpacks the opportunity costs associated with “breakevenitis”—when investors sell stocks that have rebounded to pre-correction levels and miss out on future growth.
Title screen appears, “Fisher Investments' Founder Ken Fisher Explains the Dangers of Breakevenitis”
A man appears on the screen wearing a navy suit, sitting in a office in front of a fireplace.
He begins to speak.
A banner identifies him as Ken Fisher, Executive Chairmen and Co-Chief Investment Officer, Fisher Investments.
Ken Fisher doing hand gestures time to time explaining.
Ken Fisher: You may have heard me say before, and I know I could be wrong, that I think that what's been going on in the stock market this year is an almost archetypal stock market correction, not the beginnings of a bear market. And of course, the definition of bear market traditionally is a decline with some good duration of more than 20% off of the very broad stock market.
Ken Fisher: I like to think of that off of the global stock market, MSCI World. You may prefer to think of it as the S&P 500, but it's not off of some little narrow sector going down. A lot people say that a lot. I always get a little annoyed by that when they say something like the steel stocks are in a bear market. There's something that's always falling apart, that doesn't tell you much about the broad market.
Ken Fisher: A drop of 10 to 20% is traditionally thought of as a correction, is faster and ends quicker and reverts to new highs within a bull market. And a drop of less than 10% is just kind of thought of as normal volatility. This one, based on all of the corrections that have existed for the S&P 500 since 1925, just fits into the pattern of an archetypal one in terms of the way it's acted from the very beginning. They typically, depending on whether you're looking at mean or median average, last two to three months. They drop on average about 14%. This one at its bottom so far has been about 13%. They about two thirds of the time recover in a V-shape pattern, and about a third of the time recover in a W-shape pattern.
Ken Fisher: And people try to time them. And I've always said they come for any reason or no reason. They've always got scary worst and first stories. Oh, my God. It's terrible. It's the worst, it's the first. This has never happened before. This is going to be a catastrophic event. But in fact, those fears end up being false and the bull market resumes.
Ken Fisher: Trying to avoid these things is something that no one's ever done very well. But when they try, they're often in the process, once one started, of saying I think it's going to be a real bear market and I want to get out. I want to get out to sidestep the bear market. And if they're right, that's perfectly valid thing to do. But the worst thing you can actually do is to get out at the bottom of the V, or right after the resumption of the bull market just as it started.
Ken Fisher: As you get to breakeven, which is often referred to as breakevenitis. Breakevenitis is the desire to get out where you got in so you haven't, on paper, dollar to dollar, lost any money. And the problem with breakevenitis is that when you have a correction and you get back to the top, the history of that is that the next 6, 12 and 24 months is very positive, and you miss out on the opportunity costs that had you in stocks in the first place at the moment that the correction started.
Ken Fisher:And that loss of opportunity cost is a bigger real loss for you. Not a loss in dollars that you lose, but a loss in dollars that you should have had, than anything that happens within the correction. So, it's very important when you see a correction rebounding, not to say boy oh boy now that it's rebounding, I ought to get out before it goes back down for fear that it might, because the reality is that once you get to the new high, you're going for a nice long ride for a good long time and to miss that is actually a huge opportunity cost and detrimental to why you own stocks in the first place. Thank you very much for listening to me.
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A series of disclosures appears on screen: “Investing is Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of fisher investment or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.
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