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

    5 years ago

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

    Book Review of ‘Smartcuts’
    There is a hard way and then a smart way
     
    The subtitle of Smartcuts by Shane Snow, a New York-based writer and web entrepreneur, is, “How Hackers, Innovators and Icons Accelerate Success”. We know about innovators and icons but who are hackers? Welcome to a new Americanism (in case you do not know it already) that everyone working in the area of digital marketing and start-ups now uses. Terms like ‘growth hacking’ and ‘life hacking’ are products of this new usage of hack, which probably comes from computerese—hacking. It simply means cracking the code. 
     
    We all know that success is about hard work, diligence and talent. But how is it that some people are more successful in cutting downtime, racing multiple steps ahead, finishing faster and so on? To quote some real-life examples, how does a start-up like Snapchat or Whatsapp go from zero to billions of users in just a few months? “How did Alexander the Great, YouTube tycoon (Michelle Phan), and Tonight Show host (Jimmy Fallon) climb to the top in less time than it takes most of us to get a promotion?” By having a hacker’s mindset and thinking laterally. 
     
    The traditional route to success is to “work 100 hours a week, believe you can do it, visualize, and push yourself harder than everyone else.” This is an unnecessarily hardworking model today. The world has changed. In the 19th century, it took John D Rockefeller, the oil tycoon, 46 years to make $1 billion. Today, Internet entrepreneurs like becoming billionaires in a fraction of the time-even accounting for inflation. 
     
    We are only limited by our thinking. Snow cites futurist Ray Kurzweil’s essay, “The Law of Accelerating Returns”, which argues that in the 21st century, hundreds of years of progress will be compressed in a matter of decades. Communication is faster, tools of progress are numerous.
     
    However, we are all mired in the past. As Snow puts it, traditional thinking says to earn success, we have to pay our dues and take our time moving slowly up the ladder. Snow suggests that we learn from those who become United States presidents, like Barack Obama, without labouring their way through the Senate or the Congress, or web entrepreneurs, or businessmen like Elon Musk who launched his own rockets. They all “buck the norm and do incredible things in implausibly short amounts of time.” This is also why renowned physicist Freeman Dyson says six-year-old kids should be given calculators and not be forced to learn multiplication tables.
     
    With youthful looks and frizzy hair, Shane Snow is instantly compared to Malcolm Gladwell especially because, like Gladwell, he blends academic research with gripping anecdotes of an astounding variety—Cuban revolutionaries to stand-up comedians to cardiac surgeons to racing car-drivers to record-holders of videogames. How do they do it? Snow thinks he has found the formula, which he divides into three sections—shorten, leverage and soar—covering nine chapters. 
     
    Shorten: According to Snow, ‘shortening’ doesn’t mean replacing hard work, but eliminating cycles that were previously thought necessary. How do you shorten the course? You try to find shortcuts others have missed, you train with masters and you use rapid feedback. 
     
    Leverage: ‘Leveraging’ means getting the biggest bang for your buck for your time, effort and money spent. How do you create the lever that will catapult you to record heights? You use a platform, ride the waves and ‘network’ (now a verb). 
     
    Soar: Snow uses this term to describe the use of upward momentum, not experience, to dictate one’s own personal success. How do you soar over the competition? You look for an opportunity to ride the momentum, make your product or service or your appeal utterly simple and, finally, think of a change that is 10 times in magnitude from what is currently practised.
     
    Smartcut is not shortcut. Shortcuts are unsustainable in the long run, whereas smartcuts are sustainable and ethical ways of getting ahead through ‘lateral thinking’, or the act of reframing problems to challenge their basic assumptions. A fascinating book.
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    Book Review of ‘Panic, Prosperity and Progress’
    Five centuries of bubbles and panics
     
    book review, Panic, Prosperity and Progress, Timothy Knight, Wiley, Isaac NewtonIn 1711, Britain was deep in debt following its debilitating war with Spain. It owed £9 million and had no means of paying it off. The prospects of government bonds being paid back were so low that they were trading at 50% discount. It made the financial elite of Britain to form a private organisation to take over and manage the government debt. In return, they demanded a monopoly to trade with the Spanish colonies of South America which, at that time, was referred to as the South Seas.
     
    A new company, called The South Sea Company, was born to take over the debt. The holders of debt would get shares in the new company but the government would continue to make interest payments to the company. In essence, their cash flows were secured by interest payments and their profits by the monopoly trading rights, even though Britain was still at war with Spain till 1713.
     
    The reality was different. There was hardly anything to trade with South America. For seven years after the formation of South Sea Company, not a single ship left Britain to trade. When it did, it was to trade not in products or materials, but in slaves. The agreement with Spain was too restrictive: supply the Spanish colonies with 4,800 slaves per year for 30 years and just one ship of up to 500 tonnes of other cargo. If that trade were profitable, the Spanish king would take away 25% of the profit.
     
    Meanwhile, there were no interest payments by the government. Unpaid interest had accumulated to over a £1 million. Shareholders were expecting dividends from that interest. To make up, fresh shares were issued. The shares of South Sea Company got listed and started to move up gradually until late 1719 because of the expected profits from trading with distant mysterious lands. But soon war broke out again between Britain and Spain and the South Sea Company got reduced to just a building in London holding a bunch of bonds of dubious value. This did not deter massive speculative frenzy in South Sea shares. 
     
    There was heady excitement about bold new frontiers in finance being conquered, with private enterprise running public finance. South Sea stock took off and, with it, stocks of newly listed companies committed to outrageously harebrained schemes such as trading in hair, horse insurance, creating a wheel of perpetual motion and “carrying on an undertaking of great advantage but nobody to know what it is.” South Sea Company promoters were unhappy with this bubble. They even got a Bubble Act passed by bribing the lawmakers requiring all traded companies to receive a royal charter. Most of them did not get the charter and were suspended. The South Sea, of course, got one and its shares shot up tenfold in six months! 
     
    This caught the attention of Britain’s most distinguished scientist at that time—Sir Isaac Newton. In early 1720, he bought some shares at £150 and sold them at £350 for a princely profit of £7,000. The stock continued to climb. Newton jumped back in and put in much more money to make up for lost time (and profits), even borrowing money for it. The stock almost hit £1,000 and then crashed like a waterfall inflicting a loss of £20,000 (which, in 1720, amounted to almost all his life savings). This prompted him to say: “I can calculate the movement of heavenly bodies, but not the madness of men.” 
     
    The South Sea Company is one of the great bubble and crash stories. Many books have referred to it. One of the finest is Devil Take the Hindmost by Edward Chancellor. Panic, Prosperity and Progress, by Timothy Knight, is of the same genre. It documents five centuries of such episodes starting with the Tulip Mania in Netherlands and moving on to California Gold Rush, hyperinflation of Germany, the Internet bubble and the financial meltdown of 2008. An interesting read but should be available in paperback. 
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