Ken Fisher, one of the most outspoken money managers in the United States, has an excellent investment pedigree.

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His father, Philip Fisher, was an investment adviser who wrote a classic book about the stock market in the 1950s that Warren Buffett regards as one of his biggest influences. His son has been a columnist in Forbes Magazine for 24 years, is the author of four investment books himself, with a new one coming out in the autumn, and runs his own money management firm, Fisher Investments, based in California, with $48 billion of funds under management.

Armed with an encyclopaedic knowledge of stock market history, Ken is never happier than when defending a contrarian position on the markets. I spoke to him on a recent visit to London.
 
Why are investors so gloomy at the moment?
 
I see three main reasons. One, major asset categories of all forms have performed dismally for 8-14 months, depending on how you define it. That wears on people because, whether it is housing, bonds, stocks or cash, there is no place to escape to without what seems like huge risk. Two, the stories accompanying this period are seemingly new to most people and impossible for them to calibrate and hence impossible for them to figure a way out of, or any sort of happy outcome.  Three, parallel to two, the media has little or no interest in anything but negative stories and so the public hears almost nothing that isn’t negative.  
 
Does that create an investment opportunity – and if so where?
 
Yes. The best opportunities now in my view are in stocks.  This is an almost archetypal global stock market correction — which implies there is another bull market leg ahead, leading to a final classic peak.  
 
Any idea where that final peak might be? Or which sectors you expect to do best?
 
The final peak is probably more than 18 months away, but beyond that everything is always too cloudy to see.  As for sectors, I expect the same areas which led in 2006 and 2007, and since, before and during the correction, to keep leading through the peak. They are energy, materials, industrials and emerging markets. While I remain bullish on emerging markets overall, I am not as keen on the BRICs (Brazil, Russia, India and China) as on the others. Too many folks have already get hung up on the BRIC story.  It has been over hyped.
 
That these sectors have continued to lead through the correction and since tells me that it is a correction, not a bear market. It is normal to have sector rotation at the peak of a bull market. In other words, the sectors that led the market up to its peak stop leading, as technology did in the 1990s.  The continued leadership in these areas encourages me that we have a continued bull market.  
 
Do you detect any clear style trends at present – growth versus value, large cap versus small cap?
 
The world is moving toward larger, quality stocks in the run-up to the end of this bull market. Energy, materials and industrials are all doing well relative to the market — which would not be true if the economy was tanking.  The large and valuish part of energy, materials and industrials will continue doing well until the end.  Emerging markets should also continue to do well through to the end.
 
What about the credit crunch – hasn’t it still got a long way to run?
 
I have never believed we’ve had a credit crunch. What we have had instead is something that people often confuse with a credit crunch, namely a rotation of credit to a new lender base at a time when the banks have been bloodied.  Of course it is true that we’ve had our once every 15 years example that bankers are idiots. That isn’t new.  
 
Were this a real credit crunch, however, total corporate borrowing would be down. In fact it is not. It is up. In a credit crunch deals like the big beer buyout (the Belgian brewer InBev’s $46bn bid for Anheuser-Busch), or the recent Wrigley’s-Mars merger, could not have been financed.  Who would have thought when folks first started squawking about a credit crunch that we would see debt financed takeovers of this size anytime soon?  The rates on AAA rates on corporate bonds have gone down, not up.  
 
What banks are now doing is lending to the biggest borrowers instead of small cap value firms and home buyers.  So while some areas like housing and cars continue weak, other areas like non-residential construction and all materials, infrastructure, electronics, and smaller ticket consumer items remain strong.  
 
How do you rate the candidates in the US Presidential Election and what impact would their respective victories mean for stock markets?
 
This is the worst pairing of candidates I’ve ever seen.  Either would be easy for a good opposing nominee to slash to shreds.  The problem is they’re both so bad.  It is like watching Bob Dole running against George McGovern!   Obama is ahead now. Normally the Democrat gains between this point and September and then the Republican starts to gain.  But this election as a fight is going to come down to a comedy of errors and lucky blows.  Any darned thing could happen.  
 
The history of party victories is overwhelmingly clear in U.S. elections.  Republican victories are met with a strong back half of the year as pro-business forces raise their hopes, only to have them dashed in the inaugural year when the new President disappoints.  By contrast, Democrat victories in history are usually positive, but produce below average market returns as folks fear the winner will be bad for business.  Then in the inaugural year, markets do better under Democrats. Inside all politicians however is the soul of a reptile. They always turn on their power base and prove disappointing to those who believed in them.   
 
Where do you think interest rates and the dollar are heading?
 
I’ve no great view on the dollar, as it depends on unexpected differential rate shifts between central banks, and I’ve no good way right now to see something about that everyone else can’t see.  As to interest rates, my guess is that not much will happen to U.S. short rates. The new President will pick the next Chairman of the Federal Reserve’s term in early 2009, the first time in history that this has happened. Mr Bernanke knows this and as he wants to be re-appointed, he won’t want to rock the boat going into the election. He will want the new President to see him as accommodative to the President’s re-election prospects.
 
You have been a big user of ETFS in the past – are they a good tool for the private investor?
 
Not so much. We use ETFs at times for getting exposure to sectors and fulfilling functions that are hard to accomplish otherwise.  I prefer to be as close to basic securities as possible. I’d always rather own stocks than ETFs.  ETFs are a tool, and a good one, like a hammer.  But you wouldn’t deal with nuts and bolts with a hammer.  All tools are there to use at the right time and function.  In that way ETFs are no different.
 
What is the most important thing investors need to learn in order to do well?
 
That, straight out of finance theory, the only way to beat the market in the long term, other than through sheer luck, is to find a way to know something others don’t know.  
 



Jonathan Davis
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