Fisher Investments Reviews Your Questions on Passive Investing, Value Leadership & More

Transcript

Ken Fisher:

Remember, there will always be some stocks in every category that are giving back returns. That's true whether the category is part of the world that's leading or part of the world that's lagging. Some won't participate because they're, if you will, the ones that don't really fit for some reason within those categories. But overall, I don't think it's that the growth stocks will start going down. It's just they won't be leading anymore.

Every month, some people send me a few questions. Wanting my crazy responses. So we got some here. “So many people in the investment world say that the small investor does not have the information or the expertise to hold individual stocks. I would like to hear your opinion.” I don't think there's an easy answer on that one, because when you think of small investors, you got all kinds of people that are all kinds of different. Some are like this, some are like that, some are like the other.

And it's almost insulting to make a generality of them. Small investors obviously can if they want buy broad passive funds, mutual funds or ETFs that mimic the market as a whole because you don't need to put in that much money per purchase to buy those funds. That's obviously feasible and separate from owning individual stocks, but there's nothing that's ever stopped small investors from before I was even around from buying individual stocks.

The key is do you do it well or badly? And obviously that should be important. Now the fact of the matter is. That when we think about how that could be done, the most important thing for most people. More than trying to be some super sleuth stock picker, a Twinkle Toes trader, is to buy good things that they believe in and hold them, because time in the market for most people is more important than trying to time the market, and particularly for that small investor, unless they got a lot of background and skill, try not very good at trying to time the market anyway.

So a big important part of that is buying things that you actually know a fair amount about, and believe in pretty completely. The reality of doing that is most simply, what do you know? What do you know pretty well that you actually have faith and belief in and is enduring and can continue, maybe at a moderate, not spectacular rate to grow. Look around at the world that you encounter, that the world you see, you can do that yourself.

One month you buy a little bit of this. Another month you buy a little bit of that. Six months later, you're buying a little bit of another one, but you just lay out in the world what do I know Are good companies doing good things? Prices may bounce around this month. I'm going to get this one a year from now. I might buy a little more of it down. I buy a little more if it's up. Every month, as I'm saving money, I put a little bit into one. I put a little bit into another. It's not that complicated.

So with that, I do believe small investors can do fine on their own, whether they engage passively, and then they have to hold for a long time. Or with individual stocks, and then they have to hold for a long time. Using common sense, not trying to be too cute and focusing on what's good, simple, and you understand and you know may not be the rocket ship to the moon, but is going to be an important part of your life 20 years from now as a business. And a growing part of the world. Thank you for listening to me on that one. Next one.

“I saw that you expect a rotation to value around mid-year. Is there anything specific you're looking for timing wise?” No. Not particularly. I think of this more like a dimmer switch than I do like an on off toggle. I think that some of this comes from features that you can't predict precisely.

Part of it's sentiment, part of it is as central banks, whenever they do, and however much they do start to cut short term interest rates, steepening the yield curve, making it even more advantageous for banks to lend money to value oriented companies. And part of it relates to smaller stocks, and that have been crowded away from the trough of bank lending, to some extent having greater access to that. But I don't think there's a precise way to see 1 or 2 things that say, now is the time. I think of it more like easing in over time.

“In one of your books, you stated that times was flat yields spread are typically times when growth stocks benefit, such as in 2023. But will this hold in 2024 as spread is still flat” Well, again, this is what I was just speaking about before. The fact of the matter is, when short term rates traditionally and it's a little different this time now than than than most times in the past when short term rates are high relative to long term rates, because banks are in the business of borrowing short term money, using it as the basis for making long term loans, the profit margin on bank lending is smaller than when short term rates are very low compared to long term rates, when, therefore the cost base is low, the long term rate they lend out is higher, and they get a fatter profit margin off of lending, and they get more eager to lend and they lend more.

In the recent environment, as I've talked about in times past, this last year and the year before, because of what was abnormal, associated with everything that happened at Covid and the features that went on with that. So many people put so much deposits into banks at very low costs that even as central banks raised short term interest rates, the cost base for bank loans remained very, very low under three quarters of 1%. And in that lending would continue not as robustly as before.

The central bank started raising rates short rates, but still continued. The fact of the matter is that exactly as the question is framed. The central bank trying to do that. Push up rates curb lending. Some helps the growth companies, the high quality growth companies, the big, strong, well-recognized ones because because they're the high quality, the banks are always going to lend them money.

They just when banks don't want to lend as much, they starve the lower quality and smaller ones. But as central banks move now to reduce short rates whenever that is, however much that is, that incrementally helps the smaller and the more value oriented, lower quality companies. And that in fact should therefore not so much favor what has been strong, which is the big and the growth.

“If the rally in tech and high end consumer goods fade and the style switches to value stocks, that that mean the gains in tech will simply slow compared to value stocks, or will they lose some of those gains?” Well, mind you first, before we get to that, remember that some stocks do this and some stocks do that even within categories that are doing well or badly. So I overall believe relative to your question, that.

The categories that have been doing market leading great performance are not going to become terrible performers. They're just going to more or less fall into line and no longer be the leaders. It's not that they're going to give back returns, although remember, there will always be some stocks in every category that are giving back returns. That's true whether the category is part of the world that's leading or part of the world that's lagging.

Some won't participate because they're, if you will, the ones that don't really fit for some reason within those categories. But overall, I don't think it's that the growth stocks will start going down. It's just they won't be leading anymore.

Thank you very much for listening. I always enjoy answering the questions every month. Send in more and I'll be back next month to do it again, I enjoy it. I hope you enjoy it. Thank you for listening to me.

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