Personal Wealth Management / Expert Commentary

Ken Fisher Explains How to Position Your Portfolio for a Market Recovery

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher explains how you might position your portfolio for a new Bull Market bounce. Ken notes that historically, categories that drop the most during a bear market tend to bounce the most in the early stages of the subsequent bull market.

In his view, Ken believes stocks bottomed in October 2022 and thinks we are likely in the early stages of a new bull market. He expects sectors that were hurt the most last year, such as Information Technology and other growth oriented sectors, are more likely to perform well in the first part of this new bull market. Similarly, Ken says sectors and categories that did well during the recent bear market—such as Energy—tend to underperform during the initial bull market bounce. This might sound counterintuitive as people instinctively think that the stocks that have recently performed better will continue to do so. Whether a new bull market is already underway or not, Ken thinks investors should expect the market to bounce in the near future. Investing in categories that suffered the most during the downturn is one way to benefit during a market recovery.

Transcript

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Ken Fisher: Some people think the market will go up, others think the market will go down.

That's kind of a gating feature in how you think about maybe what you want to do over the next, however many number of months.

Ken Fisher: Fact is, my view, which I've articulated many ways in many places, is that I believe the market made a bottom on October 12.

I believe we're in a new bull market.

I may be wrong, I may be right, but if we are, then you say to yourself in

a new bull market, what bounces the most?

And the answer is, and this has been not perfectly, but almost perfectly true throughout the period from October 12th on, the categories that drop the most tend to bounce the most.

Not every week, not every month, maybe not for two months in a row, because markets are volatile, you know that.

But the categories that drop the most in the bear market tend to bounce the most in roughly the first third of the next bull market, however long that subsequent bull market may last.

So, in that you say to yourself at one level, you just throw out the notion of specificity and ask yourself more broadly what fell the most?

And you actually know that the things that fell the most were things that were growthy, things that were cyclical, not value stocks, so much more growth stocks.

And those are the things you would expect to bounce more.

Ken Fisher: I don't want to get into specific securities, I don't do that in broad public commentary ever.

There's all kinds of problems if I do.

And if you need me to get you into those things, you need me to get you out of them too.

And that's not pretty because it's not going to work that way.

But what I want you to see is that you can just simply go and look at what was hurt more in the bear market and load up on those categories of things.

And in the bounce period you'll do better, diversify amongst it, but you'll do better.

Ken Fisher: Now, I want you to see how much that's often counter to normal human instincts. Normal human instincts want to say I want to buy and own the things that didn't do badly in the bear market.

And so, you can see in public commentary a lot of favorability, let's say, toward energy, which did really well through the course of the bear market.

The fact of the matter is, those things that did well in the bear market, like energy, tend to do badly in the bounce.

There's reasons for that.

I don't really need to go into all the details with energy.

But you can just see it as a juxtaposition off the bottom between energy on the one hand and let's say growthy stocks on the other, tech or no, whether they're tech stocks or non tech growthy stocks.

Ken Fisher: So, I encourage you to just think in that simple framework of things that got battered more, like consumer durables, that are inherently economically sensitive, things like tech, growth stocks in general, those because they got battered more tend to bounce more because they got battered more, you tend to be afraid of them.

That fear is actually your friend if you let it be.

And that's the way to think about that in roughly the first third of this next bull market.

Thank you.

Ken Fisher: Oh, let me just go on for a second.

If in fact I'm wrong, they'll fall first and more, those same things.

The trend of the bear market to continue punishing the things that had been doing badly, if the market goes south and goes down in a material way as 2023 progresses, will continue to do badly, but they will then continue to bounce more later as category.

Ken Fisher: And so, I encourage you not to be frightened by that.

Should I be wrong and should the market go down?

There is a bull market ahead.

It's just a question of when.

I think it already started in October.

Maybe I'm wrong, but either way, if things were battered more, should bounce more.

That's where you should focus for the recovery when it comes.

Thank you.

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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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