Given the withering fire of fear and loathing from all corners of the financial media, a safe haven from the bombast can be found in books by Ken Fisher, the ubiquitous money manager whose ads pop up everywhere.
Fisher has just published yet another winner for anyone trying to pick through the doom and gloom of simplistic screeds marketed as expert opinion. While most of the media's nattering nabobs are people who don't manage money, Fisher's firm has the confidence of investors who have parked $32 billion with him. His new book, "Debunkery -- Learn It, Do It, and Profit From It," comes as a breath of fresh air.
Back in 1988, I stumbled on Fisher's first book, "Wall Street Waltz," a collection of financial charts. Unlike written opinion, charts can't bloviate, and numbers never lie. One showed residential house prices rising just an average of 3 percent per year over long periods of time (the same as inflation.) To those who say their house has been their best investment, the S&P 500 has beaten house prices by 7 percent per year.
Another favorite graph was the one that showed stock market downdrafts that inevitably followed periods of an inverted yield curve in the bond markets. Inverted yield curves mean that short-term bonds are paying higher interest than long term bonds, and this occurs when borrowers are convinced that they will get better long-term rates if they wait until the economy goes down the drain -- in a year or so.
Sure enough. The comparison chart showed stocks floundering after an inverted curve.
Of several debunkeries I liked, one was the fact that "normal" returns in the market are really pretty rare -- happening only about a third of the time. Relatively large positive returns happen about 38 percent of the time, and negative returns (divided equally between large and small corrections) happen about 28 percent of the years. We like to think in terms of the "normal" 10 percent average return, but it comes as the combined result of a few extreme highs and lows.
No single type of company or mutual fund is "the best for all time." When small company stocks are doing well, the IPO market heats up and takes more of these companies public, which increases the supply of small-cap stocks and dilutes the value of all of them.
Demand for types of companies is what causes stocks to rise, and demand is fickle. It moves toward whatever type of company has been the "runt of the litter" and is therefore not flooded with a new supply of yesterday's hottest investment type. Shifting strength among market sectors explains why diversification and periodic rebalancing is by far the best strategy for investors.
Dollar cost averaging -- the notion of easing money into the market in installments so you don't make a big mistake by investing right at the top -- gets pounded in "Debunkery." It's nothing more than trying to avoid the regret of experiencing a big loss, but the fundamental problem is that human nature has us react much more emotionally when something bad happens.
Feeling bad far outweighs feeling good, so we go some lengths to minimize feeling bad at the expense of feeling good. Statistically, we would be better off just taking the plunge, when it comes to making an investment decision.
Does a spike in oil prices destroy stock market values? Sometimes, but for every time this has happened, there have been an equal number of times that rising oil prices were accompanied by a booming stock market. So, rising or falling oil prices are meaningless as a barometer for future stock values.
Losing sleep over China owning so much of our country's debt? Not to worry. They only have 7 percent. We owe most of our national debt to ourselves -- government agencies and individual investors own 70 percent of all that debt we read about. If China bailed out, we could easily pick up the slack by going from 70 percent to 77 percent.
And gold? Well, gold historically has offered rising values during only about 15 percent of the time since 1973. Gold booms contribute to an overall return that has been less than money market funds over the same period. Take out the six short boom periods, and gold has lost 67 percent over the past 40 years.
I could say, "Wait. There's more!" but I don't want to spoil if for you. Buy the book and learn to debunk all that "conventional wisdom."