Ken Fisher and common sense

Ken Fisher's new book provides some simple common sense ideas for investing. Remember the past because it is likely to repeat or at least provide insight on where we are heading. The idea that "this time is different" is simply wrong. History does repeat itself, but with slight variation, so our job is not to accept that we are in a different environment but decipher what is new relative to what is like the past. Do your homework and do not believe the headlines. 

Fisher provides some interesting example of how we think the current environment is different but it is actually just a repeat of the past. He uses past headlines to show how we have been there before. For example, the the idea that we are in a "new normal" is old. We can go back decades and read financial writers exclaim that we are in a new normal. Th same argument applies to a "jobless recovery". All recoveries are initially jobless because job growth turns later in the business cycle. That is the history of business cycles. Moaning about the jobless recovery initially makes no sense in historical context. There could be a jobs problem, but it has to be in the context of what is normal. The talk of a double dip recession has occurred with many recessions. This is not a new fear. Our understanding of the link between history and reality is faulty.

The same can be said about ideas concerning average return with stock indices. Bull markets are inherently above average and you get a V-bounce with recoveries. This happened again after this recession. There should not be a worry that the markets are getting ahead of themselves given that this is inherent with most of history during recoveries. The arguments that the markets move too far or too fast during a recovery are misplaced since all have to be above average returns. 

Volatility within a trend is normal. You can have a recovery but still see variation in market returns and in economic data. The markets are usually never dull. Accept that markets and the world is always changing. Fisher presents a table on big events every year since 1934. There was a lot of uncertainty going on even with markets moving higher. Bear markets do occur but the downside risk over the long-run is still relatively low when you account for dividends as well as price change. The talk of a lost decade for stocks in 2009 and 2010 was misplaced. 

There may be a debt problem but discussions concerning an over-indebted consumer have been had for decades. Less debt may be better but  a debt free world is worse. Like anything, too much is a problem.

This is a fast read but a thoughtful set of arguments that history has something to teach us.