Book Reviews
Book Review of ‘Beat the Crowd’
How to be a contrarian. Firstly, neither follow the herd, nor go against it
 
Kenneth Fisher is one of the longest-running columnists in Forbes magazine and a self-made billionaire. With 1,000 people in one campus in Washington, 600 in California and 400 in the five other continents—mostly in Western Europe—Fisher runs a huge fund management business, managing over $68 billion belonging to 100 institutions and thousands of individual investors. He ranks 240 in Forbes’ list of billionaires, with an estimated net worth of around $3 billion. Ken’s father was the legendary value investor Phil Fisher, a contemporary of Benjamin Graham. Most of Fisher’s books have been reviewed in this magazine. This is his 11th book. His speciality is debunking many investing myths. His latest book, Beat the Crowd, is as fascinating as the previous ones, even though many facts in are similar to his Debunkery or Only Three Questions that Count.
 
Why do so many people lose money in the stock market? “Few truths are self-evident, but here’s one as close as they get: in investing, the crowd is wrong much more often than right,” says Fisher. Most people follow the rest of crowd, go by popular opinions which steers them the wrong way. So, should you go against the crowd, given that they are almost always wrong? The way to make money in the market is not to always go against the crowd. The true contrarian neither follows the herd nor goes against it. He, or she, is an independent thinker steering clear of the many myths and misconceptions that lead people the wrong way. But, to think independently, you need access to enormous research that can separate the myth from the fact and continuously test new evidence and hypotheses. With hundreds of researchers, Fisher is able to test out every bit of useful and useless information round the year. Gems from that rich research are available in each of Fisher’s books. This one is no exception.
 
One of the gems of this book is that the market does not care for anything that is less than three months for the short term and more than 30 months over the long term. In other words, what happened yesterday is pure noise, as is what will happen the next week or month. Similarly, long-term forecast that goes beyond two-three years is pure bunk. Too many factors could change in between and unseen factors could emerge. So, focus on the market and economic climate, the three-to-30-month timeframe.
 
Fisher, who popularised the price/sales ratio to select undervalued stocks, believes that the market is somewhat efficient. It is, indeed, continuously pricing in all available information. The book tells you what you should not be worried about, because they are already ‘in the price’. If everybody else is worrying about something (Greece or China), you don’t have to because they’ve done it for you; and it’s been priced into the market. This does not mean that the market is perfectly priced. He gives examples of how, apart from bulls and bears, there are elephants in the market that reflect great opportunities or bad risks. Most investors overlook the huge elephants ‘hiding in plain sight’. 
 
Fisher, who has been writing the ‘Portfolio Strategy’ column for Forbes magazine for more than 30 years, has done extensive statistical tests of different popular investment notions and found them of dubious value. On the other hand, he has discovered several contrarian investment themes that have worked well, so far. For instance, value stocks and small stocks do well early in a bull market while growth stocks and big stocks do well late in a bull market. Also, companies with very fat operating profit margins are strong late-market performers. For decades, people have completely forgotten about that. This is an elephant in the room. 
 
Fisher has consistently pointed out that most investors get negative too quickly because they forget the past and pay attention to the media chatter which enjoys scare-mongering. He gives a long list of supposed events, assumed to be negative for the market but aren’t. This is an Indian edition and priced reasonably. A must read. 

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COMMENTS

Nilesh KAMERKAR

1 year ago

You couldn't have timed this review better. . .

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Nifty, Sensex may record more losses – Thursday closing report
While there are chances of an intraday rebound in indices, a fresh downmove seems to have started 
 
We had mentioned in Wednesday’s closing report that Nifty, Sensex were headed sideways with a negative bias and that only if Nifty decisively crosses 8,530, bulls have a chance. In a volatile session, the major indices in the Indian stock market fell sharply by 1%-2%. A continuous slide in the Chinese markets, strain in US stocks and uncertainty over the recommendations on retrospective tax subdued investor sentiments in the Indian equity markets on Thursday.
 
 
Bearish sentiments were seen to rule on the S&P Bombay Stock Exchange (BSE) with its barometer 30-scrip sensitive index (Sensex) closing 324 points or 1.16% down. Nifty of the National Stock Exchange (NSE) closed 122.40 points or 1.44% in the red at 8,372.75 points.
 
Analysts pointed out that weak global cues coupled with uncertainty over the government's retro-tax committee's report dampened the Indian markets. The negative bias washed out healthy macros like announcements about new banks licences and global slide in commodity prices, especially crude oil. 
 
The most significant source for downside for the day emanated from US and Chinese markets. Concerns about the Chinese markets have grown after various efforts by the government, brokerage firms and mutual funds there have failed to arrest the fall.
 
Investors were also cautious about the growing possibility of US raising its interest rate after a decade of easy financing. The intent was made clear by the minutes of the last Federal Open Market Committee (FOMC) meet which was held on July 28-29.
 
Higher interest rates in the US are expected to lead the FPIs (Foreign Portfolio Investors) away from emerging markets such as India.
 
The markets were also anxious to know the government's position on the recommendations made by the Justice AP Shah committee on minimum alternate tax (MAT).
 
The MAT issue on capital gains tax is expected to impact the margins of foreign funds. This might impact the inflows from the FPIs into Indian stock markets.
 
At the same time, the rupee touched a new two-year low in the intra-day trade at Rs65.69 to a dollar -- the lowest since September, 2013. It later closed at Rs65.56.
 
Sector-wise, all 12 indices of the BSE except for fast moving consumer goods (FMCG) and healthcare stocks closed in the red.
 
The S&P BSE FMCG index rose by 106.10 points and the healthcare index gained 68.94 points.
 
On the other hand, the S&P BSE banks index plunged by 499.82 points, automobile index receded by 353.22 points, capital goods index declined by 328.92 points, information technology (IT) index lost 269.65 points and consumer durables index dropped by 214.12 point.
 
Major Sensex gainers in Thursday's trade were: Lupin, up 5.39% at Rs1,892.10; ITC, up 3.90% at Rs329; Dr Reddy's Lab, up 1.54% at Rs4,297; and Sun Pharma, up 0.91% at Rs935.65.
 
The major Sensex losers were: Vedanta, down 4% at Rs98.50; Axis Bank, down 3.68% at Rs534.20; Reliance Industries, down 3.55% at Rs918.85; BHEL, down 3.30% at Rs253.35; and Tata Steel, down 3.30% at Rs241.65.
 
Among the Asian markets, Japan's Nikkei fell by 0.94%, Hong Kong's Hang Seng dropped by 1.77% and China's Shanghai Composite Index lost 3.39%. 
 
The top gainers and top losers in the major indices are given in the table below:
 
 
The closing values of the major Asian indices are given in the table below:
 
 
Among European indices, DAX was at 10,557.71, down 1.16% and FTSE 100 was at 6,370.13, down 0.52%.

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