Ken Fisher Introduces the 3rd Edition of "The Only Three Questions That Still Count"

Transcript

Ken Fisher: Immediately ahead is another revision of my now 18 year old book, The Only Three Questions That Count. And in my mind, probably the most important of my 11 books, certainly the biggest seller of my 11 books. And I just want to cover a few concepts about it. The book is the only three questions that count. I'm going to rattle through those three questions. But before doing that, I want to kind of take you to what led me to write the book in the first place. Now, at this point in my life, I've been running money professionally for over 50 years, over half a century. And in that, I've made a lot of mistakes, learned a lot of lessons. And when I started out, the world tended to break, and still to a large extent does, into people deploying various forms of what I call "craft" to try to invest successfully. And by that, what do I mean? Well, craft is something that you can see in lots of different forms and is really about doing something the way it's supposed to be done practicing, refining, getting better and better at it to succeed. So, so many different things. Like, let's say, being a blacksmith in history would be a craft. Blacksmithing is not a science per se. It's a craft and you have to build up the skills to do it. There's nothing wrong with that. In investing, some people would do the craft this way, some would do it that way. Some people would be called fundamental investors, thinking about things like where are the earnings and the sales of companies going to. Others would be thought of like technical investors, looking at charts and trying to discern off the wiggles and the charts where stocks should go moving forward. Moreover, you'd have value investors who are looking for stocks that are too cheap one way or another, or growth investors who are looking for companies that can keep growing longer and better than people might otherwise anticipate and therefore appreciate in price. These all, when I was young, would be treated by most practitioners as crafts. You learn how to do it, you learn how to get better at it. You read a bunch of books on doing value investing or growth investing. And when I was at my youngest in doing this stuff, I was trained to be a growth investor. Being a bit of a rebel, I rebelled at that and then became a value investor. Then later I came to view that neither one of these was inherently better for all time, and they both had periods where for years and years one of them did better than the other, and then they flip-flopped. And so I spent time trying to discern how do you get the flip-flop when, why, etc.. And then I became more of a top-down investor. But all that time I'm learning by doing and discarding what I'd I learned before in places and pieces, while also becoming more of a top-down macro investor. Now, I've been a top-down macro investor now for about 30 years. And basic principles that I believed in then, that are core to finance theory, remain ever true. Which is most simply, all those things that everyone believes in, knows about, talks about and discuss have already been priced. It's always the thing that we don't see ahead that becomes positive or negative surprise that moves stocks the most. It's what we don't see that matters. There's the seen and the unseen. And the unseen is what has the power for surprise. So in that, you say to yourself, "What is that which everyone knows?" Well, everyone looks at earnings. Different people have different opinions about what will happen to earnings, but the market is good at pre-pricing that, and the disagreements are all part of the pre-pricing. And so that's just the same thing with interest rates A craft itself. Academics will tell you this is the way it works. But of course that which they tell you is in and of itself known, widely dispersed, heavily understood and therefore priced. Academics actually as practitioners for the most part in the investing world, have not done very well because they tend to have faith in that which they've been trained in, but what they've been trained in is what's been priced and therefore tends not to have that part about the future. So, I then start with the notion that all of human existence from the beginning of time has been a learning experience, and that in that learning experience, we just keep learning. Such that, for example, when I was a boy, small boy, and had polio. This is just as we're getting to polio vaccines. But today people don't get polio because we learned. And we have all kinds of things that we keep learning from. And humans get better and better at learning, evolving, developing and improving on the past. So my first question was, what are we doing wrong now that's a little bit like the days when people thought the world was flat? And my first question was, What do you believe that's actually false? Because if you can see what you believe that's false, you can then check to see do other people believe it is true. And if everybody believes it's true because they believe it and you believe it was true, but you proved it was false. When you see X happening and everybody believes it causes Y, you can bet against Y. And that's a valuable thing to have in investing because now you have an unseen. They all believe it will occur. You know it won't. You got something that's betable. The second question is more potent and tougher to do. See, the beauty of, What do you believe is actually false? is you can just categorize I believe this, I believe this, I can believe this, I can believe this, I believe that, I believe the other. I believe the 17th, I believe the 92nd. And then you can go back and run tests on many, if not most of them to see is there correlation there. Do you have ways you can disprove it? If you can prove that what you believe is false, then you ask yourself, "Do many other people believe this?" And if they do,. So, I've got a whole list in the book of things people commonly believe that I can prove are just total nonsense. And once you I take you through that and you say to yourself, maybe you could do the same thing. Maybe you can take what you believe and see what's total nonsense. That also is self-improvement, but it's betable. It's a betable phenomenon. It's an investing betable phenomenon. The second question, which is a tougher one is, What can I fathom that others find unfathomable? This is the creative one. And in fact, I take you through a whole series of examples on fathoming the unfathomable. Now, mind you, every visionary in the world. Maybe that's wrong. Certainly, most visionaries in the history of the world have fathomed the unfathomable. Whether it would be scientists, of which I write about a fair amount, or just someone with a vision like once upon a time, Sam Walton, changing the world by creating Walmart. Or Jeff Bezos changing the world by creating Amazon. They found something fathomable that others found unfathomable. If you just said, Jeff Bezos is going to create this online retailer that's going to change how retailing exists throughout the world, most people at the time would have thought that was a crazy idea. But the never yet done thing to most people routinely seems unfathomable. And yet, it's thinking about that in how markets work that there's tremendous juice because now you can say nobody understands what causes Y but L causes Y. And now you see L happen. You got another betable event. And then the third question is, and this is another one that people do not like to look at, What's my brain doing to blindside me now? And the fact of the matter is, we're all born without bias, but we develop biases right out the gates, and we build on our biases. And our brains tend to blindside us from reality often enough. And I show you a behavioral phenomena that behavioralists demonstrate that, show those biases. Now, you're different than I am, and everybody's different, but we're all different about like, lots of other people are different. And if you can actually figure out what it is your brain's doing to blindside you and can remove the blind sidedness, you're both self-improving, but you're also giving yourself another version of access to betable events. And particularly so if the biases you have are the biases most people have. So, those are the three questions. What do I believe that's actually false? What can I fathom others find unfathomable? And what's my brain doing to blindside me now? And over the next couple of months, three, I'll come back and delve into each one of those in more detail and take you through them more. And the thing the I enjoyed the most about revising this book now, again, is how the the situations over recent years have been dramatically different. Whether it's Covid or the so-called 2023 banking crisis or the political elections of recent years. Because there's a fair amount of politics in here and how that works with markets and doesn't compared to the way people think they do and, and, and, and and yet the three questions applies almost perfectly to all of them, which is the reason that I think the book is the best of the 11 books that I've ever done. So, thank you for listening to me. I look forward to coming back next month and covering the first question, What do I believe is actually false? And look forward to sharing time with you then. Thank you for listening to me. I hope you found this somewhat educational, useful to you and not unenjoyable. Thanks. Bye.