Mailbag Q&A: Fisher Investments Reviews How to Measure Investor Sentiment, Digital Currencies and More

Transcript

Ken Fisher, teaser:

Euphoria is palpable when it comes. I think what we've had is early-stage optimism. We are in the latter half of a bull market, I think.

Ken Fisher:

Every month I get all these questions from people, and some of them I respond to, sometimes I don't. One that came in this month asked real simply, "Do companies count the sale of shares in their stock as revenue?" And the answer to that question is no, they don't. That's a balance sheet item, not an income statement item.

But if you aren't clear already on a question like that, I urge you to do one of two things. A: Go to your local college or community college that allows, you know, adult courses—you know, not full-time college curriculum—and take a course in accounting for non-accounting majors. They're offered at almost every school. And it'll teach you all the basics, the basics, of accounting, and get you to understand questions like that and many more, so that you'll be better armed for basic, simple functions of investing.

If you don't want to do that, you can do the same thing by looking online and looking for books on the basics of accounting for non-accountants. And in doing that you'll be better armed, and I encourage you to do that.

Another question that came in it says, "In your recent video, you said we're in the latter stages of a bull market. Does that mean a bear market is not far off?" No. This is all a question of how you want to define semantics, and I'm really not very good at that. When I would say, "In the latter stages," I often say—and you've probably heard me, if you've listened to these videos before— John Templeton's famous line, "Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria." So the latter stages are those last two. But that doesn't mean you're necessarily more than about halfway through a bull market, and then you don't know how long a bull market is because some bull markets are shorter and some bull markets are much longer.

And the question about "far off"—what does that mean? Like 2, 3 months, a year and a half, 2 years, 3 years? What do you mean by far off? I don't really know. But here's what I think. As we speak, the S&P 500 and the global markets have been hitting all-time highs. We don't get—we could be hitting all-time highs today and then starting a bear market today for all I know. But I don't think so because I don't think we've seen euphoria yet. I don't think we've seen the beginning of euphoria yet. Euphoria is palpable when it comes. I think what we've had is early-stage optimism. We are in the latter half of a bull market, I think. But I think we've got a fair amount of time to go before we actually see the bear market.

Now, let me amend that. Every year, at the end of the year, I make my forecast for the year ahead, and that's the best time of the year to do it. We're not quite there yet, it's a little premature. But tune back into my videos in late December and early January into mid-January, and I'll be covering that. And with that, I'll be telling you if I actually think there's much likelihood at all of a bear market in 2025.

Now, this one's kind of an apples and oranges question. It says, "What would happen if the dollar went away and everything goes digital?" I'm having trouble with that. If you want your life to be so, the dollar is already digital. I mean, I almost never use paper for buying anything. Paper money? I carry about ten paper dollars on me, ever, just in case. But for the most part, you know, you can buy almost anything you want via electronics right now. You can pay for things, you know, with your digital device directly.

I think, when you're asking this question, you're confusing digital —since most transactions are digital right now— with the dollar going away and being replaced by something like crypto, bitcoin, something like that. That ain't going to happen. Now why ain't that going to happen? It's not going to happen because governments aren't going to allow it. It's real simple. If you don't believe that, you kind of miss what governments are all about. The dollar will be around. There is already not that much paper currency usage. There's probably less paper currency usage ahead. It's entirely possible that in some day and age, when digital electronics becomes even more ubiquitous than it already is, that paper goes away completely. I mean, we really don't need a lot of metal coins anymore to trade on things in the store. But the answer is the dollar will not go away. The dollar will be digital and crypto-type functions are not going to replace the dollar, or the euro, or the pound sterling or the yen or, or, or—because the government won't allow that to happen.

"I watched your video about sentiment. Can you further define what it is and how you gauge it?" Gauging sentiment can be a little tricky but what it is is, said differently, a measurement of the demand for speculative securities. Now think about that. What is demand as it's defined in economics? It's defined as a kind of an emotion. That is, the eagerness to buy something, whatever that something is, at any given price level. And there's a general presumption that the lower the price, for that something, the more eager you would be to own it. The more emotionally positive you'd be inclined to buy it.

Now, that doesn't work perfectly that way with stocks because what tends to happen with stocks is when the price is high people tend to get more eager about them. And then, when the price falls, they tend to get less eager about that stock—and the market as a whole for that matter. But here's what happens. Think about it this way. Demand is a measure of emotion. Emotion is a human condition. But here's what happens: Stocks go on day after day after day after day after day. Your emotion goes on. But when your emotion gets real, real high or real, real low, what happens is it takes energy on your part to sustain that level of very high optimism or very high pessimism or low optimism. And that energy is draining on you. And if it's not reconfirmed with reality telling you that you are actually right, it pressures you over time back toward the middle.

Human emotion over time tends to mean revert to whatever your normal emotion tends to average. That's the way it is for most people. You get the closest you can get personally to manic, and you can't sustain that for too long. You get the closest you can be to depression, you can't sustain that for too long and you revert back to the middle. This is the way emotion tends to be, and it tends to be that way for society as a group. And it's that of society as a group that we're trying to measure when we measure sentiment.

So how do we do that? Well, we've got a variety of ways people attempt to do this, and there is no precise way to do it. It's as much an art as it is a science. But, for example, you look at what people are forecasting. That's one measure. I've got a long history of writing about how professional forecasters' forecasts tend to be wrong about a year out, and particularly when they get very optimistic. That's a statement about sentiment. Another statement about sentiment is when you look at their forecasts about a year out, are their forecasts for above-average stock returns or below-average stock returns? That's a statement about sentiment. It's a statement about eagerness.

Another is how are IPOs (initial public offerings of stocks)? Companies issuing new stock in their own company. How many of those are there? That's one measure of sentiment. When that number goes up, as it has in 2024 by about 25%, that's a statement of rising optimism. It's a statement about increased sentiment. It's a statement about increased demand for stocks because the market's testing it, can they float those offerings or can't they? And if they can, that means there were people eager to buy them. If they couldn't, there'd be fewer of them.

And then the second part of IPOs is what's the quality of the IPOs? Because high-quality IPOs of high-quality companies doesn't take as much optimism to buy as it does to buy flying garbage. Flying garbage that floats is a statement about extreme overconfidence and extreme optimism and sentiment being high.

For all of these things, there's no "sentiment-ometer" that measures them precisely. But they're all things you look at. They're all things you consider. I focus on a wide variety of them. You can get some of that—I used to, in decades back, can't anymore—see media getting optimistic. Media never gets optimistic anymore. But you can look to see is media excessively negative? Media tend towards negative always these days. They're always trying to sell on fear. There's always, "If it bleeds, it leads." I mean that started in the 1980s. Before then, sometimes, the media actually got exuberant. But media still gives you the potential to see.

Another one is companies that are issuing reports on single stocks —and you can see a lot of that online— are they making forecasts for earnings out 1 year, or are they making forecasts for earnings out 2 or 3? If they're making forecasts for 2 or 3, that's a statement about being optimistic. That's a statement about sentiment. That's a statement about demand being high. It's a statement about being fairly confident.

I wish I could give you a more precise answer. I wish there was a pure science to it. But the fact of the matter is the market pre-prices all widely known information. If there was a pure science to it, whatever that is would get priced really, really quickly and would no longer work.

And the last one: You've heard about these stocks, "M-E-M-E stocks." What are they? Well, first, before I answer that, let me say, any question like that in today's day and age you can just take your personal computer, your iPhone, whatever it is and type the question in and Google will get you an answer exactly. Fast. Pretty good. As close to perfect as you need.

In this case, what they are is stocks that have caught on in internet, social media discussion—usually lower-quality companies. There isn't a formal "they are this" and "they are not that." GameStop was the one that originally caught people's eye. A lot of this stuff has been traded through the brokerage firm Robinhood. This is all more or less a game of speculation about how much speculation there'll be on a stock. The stocks tend to be wildly fluctuating in price, highly volatile.

If you think you know how to do all that stuff real, real well, if you think you can trade stocks based on speculating about the speculation in them— you don't need any advice from me about pretty much anything. The fact of the matter is, I think very few people know how to do any of that stuff. I certainly don't, and I don't encourage anybody that even asks the question to think they should be active in that regard because the fact of the matter is most people who play in that kind of a world end up losing money. Most of the people that are doing that are young, inexperienced investors with no background or training and operating off of hunches and intuition and what they see on the internet and wild speculation about the future speculation on those stocks.

Thank you for listening to me. I hope you tune back in next month when I answer more questions. I always enjoy getting your questions. Thank you for listening. I hope you found this useful and enjoyable.