WEBVTT - Interview With Ken Fisher (Part 2): Masters in Business (Audio) 0:00:00.120 --> 0:00:02.440 The future may not be clear, but our commitment is 0:00:02.560 --> 0:00:04.400 so when you sit with an advisor at Merrill Lynch, 0:00:04.519 --> 0:00:07.160 we'll put your interests first. Visit mL dot com and 0:00:07.240 --> 0:00:09.600 learn more about Merrill Lynch. An affiliated Bank of America, 0:00:09.760 --> 0:00:12.239 Mary Lynch makes available products and services offered by Merrill Lynch. 0:00:12.240 --> 0:00:14.600 Pierce Veteran Smith Incorporated or Register Broker Dealer remember s 0:00:14.640 --> 0:00:20.400 I PC. This is Masters in Business with Barry Riddholts 0:00:20.560 --> 0:00:24.560 on Boomberg Radio. This week. On the podcast, I have 0:00:24.680 --> 0:00:28.360 Ken Fisher and just a really quick story. The first 0:00:28.400 --> 0:00:31.760 time I had Ken Fisher as a guest. Uh. We 0:00:31.800 --> 0:00:35.720 had a conversation that was quite fascinating. I'm intrigued by 0:00:36.080 --> 0:00:40.000 the business he's built and how successful he's been operating 0:00:40.040 --> 0:00:42.600 in a way that the rest of the world to 0:00:42.680 --> 0:00:47.559 finance just hasn't and he really has created what is 0:00:47.600 --> 0:00:51.720 a unique path to build a very successful firm. After 0:00:51.760 --> 0:00:54.200 we finished the interview, we walked over and we I 0:00:54.200 --> 0:00:57.920 think we were in the green room um of the 0:00:58.000 --> 0:01:01.520 television area. He had a somewhere else he was heading 0:01:01.520 --> 0:01:05.000 to or appearing, and we started talking. After we talked 0:01:05.000 --> 0:01:08.320 for ninety minutes last time, and that ten minute or 0:01:08.400 --> 0:01:11.200 so conversation made it clear to me, Gee, there's a 0:01:11.200 --> 0:01:12.840 ton of stuff I didn't get to. I want to 0:01:12.840 --> 0:01:15.640 talk to you about his business, how he grew, with 0:01:15.760 --> 0:01:18.720 the things he did, and so when I saw he 0:01:18.760 --> 0:01:21.560 was coming back into town. I think it's about uh 0:01:21.600 --> 0:01:24.560 two years since our last interview, UM, I jumped at 0:01:24.560 --> 0:01:27.920 the opportunity to interview him again. This is a very 0:01:28.000 --> 0:01:32.400 much a business focused conversation. We talked about markets and 0:01:32.400 --> 0:01:36.320 stocks and everything else, and his love of annuities, but 0:01:36.360 --> 0:01:40.240 we also talked about how he built his business. UH, 0:01:40.319 --> 0:01:43.600 and I found that absolutely fascinating and I think you 0:01:43.840 --> 0:01:47.920 will also, So, with no further ado, my conversation with 0:01:48.000 --> 0:01:54.360 Ken Fisher. This is Master's in Business with Barry Ridholtz 0:01:54.400 --> 0:01:59.920 on Boomberg Radio. My special guest today is Ken Fisher. UH. 0:02:00.040 --> 0:02:03.400 He is the founder and chief executive of Fisher Investments, 0:02:03.400 --> 0:02:08.840 which manages just under eighty billion dollars. Ken has been 0:02:08.880 --> 0:02:12.000 named one of the twenty five most influential figures in 0:02:12.040 --> 0:02:15.600 the financial industry. He's the author of a dozen or 0:02:15.639 --> 0:02:18.760 so books, half of which have been New York Times 0:02:18.760 --> 0:02:21.960 best sellers. He was named I Think you were Number 0:02:22.000 --> 0:02:25.240 two twenty five on the Forbes four hundred list. Is that, Uh, 0:02:26.880 --> 0:02:29.640 that's good because normally under two hundreds, No, it doesn't 0:02:29.680 --> 0:02:33.240 count you. You're not even median, really, so median meet medians, 0:02:33.320 --> 0:02:38.120 you know, two hundreds. So I was always below average. Well, 0:02:38.200 --> 0:02:40.960 Ken Fisher, welcome back to Bloomberg, you know, and and 0:02:40.960 --> 0:02:42.840 and it's tough to be above average. It is tough 0:02:42.880 --> 0:02:45.959 to be above everybody in money matter. So let's jump 0:02:46.080 --> 0:02:51.000 right into the concept of building a business based on 0:02:51.040 --> 0:02:53.600 the dying art of stock picking. And the first question 0:02:53.720 --> 0:02:57.400 is is it truly a dying art? You know, I 0:02:57.440 --> 0:03:00.880 think stock picking was always very tough. I don't think 0:03:00.880 --> 0:03:03.320 it's any tougher than it ever was. I think there's 0:03:03.360 --> 0:03:06.079 more light being shown on that. Now. That's a really 0:03:06.200 --> 0:03:09.919 interesting fact is that when I was young, a long 0:03:09.960 --> 0:03:14.720 time ago, there was very little, uh sort of data analytics. Uh, 0:03:14.919 --> 0:03:18.040 there was very just think a computerization and all those 0:03:18.080 --> 0:03:20.880 features on how primitive that was in that world then. 0:03:21.480 --> 0:03:26.119 And the I was at an event yesterday and John 0:03:26.120 --> 0:03:28.800 Bogo was speaking, and he was making the point that 0:03:28.840 --> 0:03:31.560 he had actually done analytical work in nineteen sixty one 0:03:32.040 --> 0:03:36.920 showing that average on average active investors lagged uh the market. 0:03:37.400 --> 0:03:40.280 And yet while you could do that analytical work in 0:03:40.360 --> 0:03:45.320 nineteen sixty one. Uh, the public perception of it really 0:03:45.520 --> 0:03:48.520 didn't much exist for a very very long time. And 0:03:48.560 --> 0:03:51.520 he talked to some length about how agonizingly slow that 0:03:51.680 --> 0:03:56.080 was for him. Uh. And yet often things that change 0:03:56.080 --> 0:03:58.040 in the world change like that, where for a long 0:03:58.080 --> 0:04:00.760 time they go nowhere fast and then lowly they start 0:04:00.800 --> 0:04:04.880 getting traction and continue. Um. I don't think countered at 0:04:04.920 --> 0:04:08.080 some people's perception because passive is all the rage right now. 0:04:08.360 --> 0:04:13.560 I don't think active ever disappears. Um. But stock picking 0:04:13.600 --> 0:04:15.960 an active management have always been tough to do and 0:04:16.160 --> 0:04:18.960 succeed at. So a couple of I'm hearing a couple 0:04:19.000 --> 0:04:23.279 of things. First, the analytics are much more readily available 0:04:23.360 --> 0:04:26.760 to anybody who wants to sit down at at Google 0:04:26.839 --> 0:04:29.760 Finance or Bloomberg Terminal and look at the numbers. But 0:04:29.880 --> 0:04:34.640 then you mentioned Jack Boglane. They didn't launch their index 0:04:34.680 --> 0:04:38.800 funds till seventy four, and he describes it as a 0:04:38.839 --> 0:04:41.839 colossal failure at first, that the five years, five years 0:04:41.839 --> 0:04:44.640 of failure, right just did nothing attracted almost no ask 0:04:44.920 --> 0:04:47.120 no I remember that world. I mean, I was, you know, 0:04:47.160 --> 0:04:49.359 I was in this realm of endeavor in those days. 0:04:49.440 --> 0:04:53.919 And I remember that world at the time, and of 0:04:53.960 --> 0:04:56.080 course you know the big cahuna and mutual funds at 0:04:56.120 --> 0:04:59.839 the time with Dreyfuss and uh, yet the war was 0:04:59.839 --> 0:05:03.680 for it different. And I also remember that in those days, 0:05:04.040 --> 0:05:07.440 you know, Forbes big annual issue was its mutual fund special, 0:05:07.880 --> 0:05:10.640 and the mutual fund special had I'm not talking about 0:05:10.880 --> 0:05:14.559 a couple of hundred fund families. They had a couple 0:05:14.560 --> 0:05:17.680 of hundred funds in the mutual fund special because there 0:05:17.680 --> 0:05:19.440 weren't that many mutual funds in the world a where 0:05:19.480 --> 0:05:22.680 there are today. All of this evolution is a slow 0:05:22.760 --> 0:05:26.400 evolution and that's not abnormal that that's that's fascinating the 0:05:26.480 --> 0:05:29.280 fifty five years later. You know the old joke isn't 0:05:29.320 --> 0:05:33.159 only takes only takes a decade to be an overnight sensation. Um, 0:05:33.320 --> 0:05:37.680 so you've built a huge r I A based on 0:05:38.120 --> 0:05:41.320 what I have to think is a somewhat different process 0:05:41.440 --> 0:05:46.120 than many of the larger asset managers build. What what 0:05:46.200 --> 0:05:50.880 makes the ken Fisher approach so unique? When I was young, 0:05:50.960 --> 0:05:55.440 I became very enamored early, very early on in nineteen 0:05:56.080 --> 0:06:00.320 with New Course Steel and New Course Steel New Ork operation, 0:06:00.320 --> 0:06:02.719 the steal manufacturer when it was just starting into steal 0:06:03.040 --> 0:06:06.440 ken Iverson. I came by coincidence to get to know 0:06:06.920 --> 0:06:09.119 and I was very impressed by what he was doing. 0:06:09.640 --> 0:06:13.800 And uh, he taught me that steel production was a 0:06:13.839 --> 0:06:16.880 function of multiple compound yields and if you could keep 0:06:16.880 --> 0:06:18.360 you didn't have to be the best in any one 0:06:18.400 --> 0:06:20.039 of them. You had to have the best combination of 0:06:20.080 --> 0:06:23.400 all of them. And then sounds like a portfolio. Then 0:06:23.400 --> 0:06:26.680 when I studied IBM, I saw that they never ever 0:06:26.760 --> 0:06:29.839 had the best computer. They always had a very good computer, 0:06:29.920 --> 0:06:31.640 but they never ever the best one. But if you 0:06:31.680 --> 0:06:34.320 took all of the pieces of what they did sales 0:06:34.720 --> 0:06:37.479 serve us, all of the pieces together they compounded to 0:06:37.520 --> 0:06:41.720 the best totality for the customer. And what I would 0:06:41.760 --> 0:06:44.080 like to think is that we from the beginning started 0:06:44.080 --> 0:06:47.119 thinking about all of those pieces. So, you know, people 0:06:47.120 --> 0:06:48.919 tend to think of us in terms of our advertising 0:06:48.920 --> 0:06:52.440 because that's what they see. That's a really wrong notion. 0:06:52.680 --> 0:06:54.960 We do a lot of advertising, that's true, but we're 0:06:54.960 --> 0:06:57.400 not actually very good at it as nearly as good 0:06:57.400 --> 0:07:00.040 as I'd like to be. We, on the other and 0:07:00.120 --> 0:07:03.599 are exceptional at service. And people don't have a most 0:07:03.600 --> 0:07:05.120 people in the world don't have a clue about our 0:07:05.120 --> 0:07:07.080 service capabilities. We do all kinds of things in service 0:07:07.160 --> 0:07:09.960 other people don't do, and then we have a good 0:07:10.040 --> 0:07:12.360 give me for instance, or is that like the secret 0:07:12.400 --> 0:07:17.080 source that secrets you know? We We have an elaborate 0:07:17.200 --> 0:07:23.680 array across the English speaking world of UM a variety 0:07:23.720 --> 0:07:27.880 of forms of client only seminars. These are not sales seminars. 0:07:27.880 --> 0:07:32.840 These service seminars for clients and their families that come 0:07:32.880 --> 0:07:37.240 in different types because different people receive information differently, and 0:07:37.400 --> 0:07:41.520 they range from very large ones with five people at 0:07:41.520 --> 0:07:45.880 a crack run by senior people at the firm, providing 0:07:45.960 --> 0:07:51.200 hours literally hours of both couple hours of presentation of 0:07:51.880 --> 0:07:55.080 detailed information as to how we're seeing things and why 0:07:55.120 --> 0:07:57.720 we're thinking this and why we're not thinking that, etcetera, etcetera, 0:07:57.720 --> 0:08:01.080 which include an education component all along with DNA, followed 0:08:01.120 --> 0:08:03.320 by a couple of hours of Q and A now 0:08:03.360 --> 0:08:06.360 all the way down to tiny little events run by 0:08:07.320 --> 0:08:10.120 people who are MN I see tiny little ten twelve people, 0:08:10.600 --> 0:08:15.560 ten TOLF customers and with technical answers being only answering questions. 0:08:16.080 --> 0:08:18.160 Two events that we do to nobody else in the 0:08:18.160 --> 0:08:20.880 world would do where we put you know, twelve twenty 0:08:20.920 --> 0:08:23.080 clients together for a lunch and there's nobody from Fisher 0:08:23.080 --> 0:08:25.040 there at all, and we let them talk about whatever 0:08:25.040 --> 0:08:26.480 they want to talk about, so they can talk about 0:08:26.520 --> 0:08:28.920 us behind their back. Because for a lot of people, 0:08:29.040 --> 0:08:32.040 actually that's the proof of the pudding is being able 0:08:32.080 --> 0:08:34.160 to talk about their advisor behind their back and know 0:08:34.320 --> 0:08:36.720 that the advisor trusts them enough to do that. Therefore 0:08:36.760 --> 0:08:39.120 they have an increased trust level in the advisor. I'm 0:08:39.120 --> 0:08:43.079 Barry Ridhults. You're listening to Masters in Business on Bloomberg Radio. 0:08:43.360 --> 0:08:47.239 My special guest today is Ken Fisher of Fisher Investments, 0:08:47.240 --> 0:08:51.640 a firm that manages just about eighty billion dollars in assets. 0:08:52.240 --> 0:08:54.640 Let's talk a little bit about where we are today 0:08:54.640 --> 0:09:00.640 in the world. It's seventeen for those you listening to 0:09:00.679 --> 0:09:04.040 this far off in the future. Valuations in the US 0:09:04.320 --> 0:09:07.840 have been called high. Interest rates are low, there's not 0:09:07.920 --> 0:09:10.240 a whole lot of inflation, and the Fed has said 0:09:10.679 --> 0:09:14.959 that they're starting a series of rate hikes to normalize 0:09:14.960 --> 0:09:19.160 interest rates. First question is how unusual a set of 0:09:19.160 --> 0:09:24.760 circumstances is the stock market in today? UM I would 0:09:24.760 --> 0:09:29.040 say that the stock market is in its um usual 0:09:29.640 --> 0:09:33.360 unique position. The stock market I went to wait, wait, 0:09:33.360 --> 0:09:35.640 before you go forward, I have to put that in quotes, 0:09:36.559 --> 0:09:41.679 usual unique position. Yeah, the stock market is always full 0:09:41.720 --> 0:09:47.160 of what appears to be morphing into different unique things. 0:09:47.200 --> 0:09:50.200 People are almost always to my opic about the features 0:09:50.240 --> 0:09:52.440 that we confront today that always seem to be so 0:09:52.559 --> 0:09:55.679 different and so unique and so unusual, and in retrospect 0:09:55.720 --> 0:09:59.160 appear not to be when I say retrospect, far retrospect, 0:10:00.240 --> 0:10:04.160 and um, all of the things that you said are 0:10:04.240 --> 0:10:08.320 quite literally correct. Uh, but I don't think that has 0:10:08.400 --> 0:10:12.319 much to do with real fundamentals. So how do the 0:10:12.360 --> 0:10:15.480 fundamentals look here? What do you see at this point 0:10:15.640 --> 0:10:19.600 in in the market cycle. Valuations are high because interest 0:10:19.679 --> 0:10:23.520 rates are low. Uh, they of course important interest rate 0:10:23.600 --> 0:10:25.760 that really matters is the long rate, not the short 0:10:25.840 --> 0:10:29.360 rate so much. And uh, you know, people have been 0:10:29.520 --> 0:10:32.000 forecasting long rates to rise for a long time, and 0:10:32.040 --> 0:10:34.680 they've always been wrong, and they'll be wrong again this year. 0:10:35.200 --> 0:10:37.240 And uh, I mean you can just kind of count 0:10:37.240 --> 0:10:38.800 on them being wrong every ry, you know, every once 0:10:38.800 --> 0:10:39.880 in a while they get to be right for a 0:10:39.920 --> 0:10:41.559 little while before they end up being wrong. But the 0:10:41.600 --> 0:10:43.600 consensus has to be wrong, because that's the market pre 0:10:43.640 --> 0:10:46.800 pricing all widely known information. That's what capital markets theory 0:10:46.840 --> 0:10:48.959 says markets do for a living, and they do it 0:10:49.000 --> 0:10:52.200 pretty well, not perfectly, but pretty well. So valuations in 0:10:52.200 --> 0:10:54.600 the US are stretched. What about I don't think though 0:10:55.000 --> 0:10:57.440 you don't think so. I think valuations are if you 0:10:57.480 --> 0:11:01.600 think of pees. For first of all, I'm getting ready 0:11:01.600 --> 0:11:04.439 for that. He ees have never been predictive, for sure. 0:11:05.120 --> 0:11:12.520 And uh, the Schiller cape pe folk always talk about 0:11:13.040 --> 0:11:15.920 that it's really only intended for ten years down the road, 0:11:16.960 --> 0:11:19.439 but then they apply it almost always to next month. 0:11:19.880 --> 0:11:23.200 And the fact of the matter is that the Schiller 0:11:23.360 --> 0:11:26.440 kpe P has been wrong so long, so many times 0:11:26.760 --> 0:11:29.600 that anyone should know not to use it for any 0:11:29.640 --> 0:11:34.040 kind of even intermediate term timing, and yet people forget that. 0:11:34.360 --> 0:11:37.720 I keep let's stay with k SEK. I totally agree 0:11:37.760 --> 0:11:42.200 with you. I think going back to CAPE has been 0:11:42.280 --> 0:11:47.320 above its long term average for the time. However, as 0:11:47.360 --> 0:11:50.400 Bob Shiller would say, when you buy, if you take 0:11:50.400 --> 0:11:54.000 the average CAPE at fifteen or sixteen, if you're buying 0:11:54.040 --> 0:11:58.480 stocks when you're at above average valuations, your forward expected 0:11:58.480 --> 0:12:01.959 return should be below average. And when you're buying Cape 0:12:02.080 --> 0:12:07.120 at below average PE, your forward expectations should be above average. 0:12:07.480 --> 0:12:10.000 Is that a fair statement the professor makes or do 0:12:10.040 --> 0:12:14.360 you disregard that? I think it totally ignores behavioral realities 0:12:14.400 --> 0:12:17.960 of what humans are. Uh. What the way humans are 0:12:18.679 --> 0:12:20.400 is that if the next ten years are going to 0:12:20.480 --> 0:12:22.319 be lousy, but the next five years are going to 0:12:22.360 --> 0:12:25.240 be great, Uh, people are gonna lose their mind before 0:12:25.240 --> 0:12:26.760 the next five years are over, and then they'll lose 0:12:26.800 --> 0:12:30.280 their mind differently five years after them. Okay, and that's fair. 0:12:30.440 --> 0:12:34.280 And the fact of the matter is that, uh, the 0:12:34.360 --> 0:12:37.680 CAPE has never been good at short term timing, and 0:12:37.720 --> 0:12:40.360 therefore that should have nothing to do with what your 0:12:40.400 --> 0:12:46.920 short term expectations are. And the reality is that a little, 0:12:46.920 --> 0:12:49.840 as I was saying before, if we could say with certainty, 0:12:49.840 --> 0:12:51.920 which of course we cannot, that the market was going 0:12:51.920 --> 0:12:54.319 to be great for the next three or four years, 0:12:54.480 --> 0:12:56.600 people would want to be in it. And the notion 0:12:56.640 --> 0:12:58.160 that I'm going to stay out of the market for 0:12:58.200 --> 0:13:00.840 three or four years while it does rate, or be 0:13:00.960 --> 0:13:03.400 out of the market for three or four years while 0:13:03.440 --> 0:13:06.720 it does great, or suffer three or four years of 0:13:06.840 --> 0:13:10.520 terrible nous. Look at the people that became Perma Bears 0:13:10.559 --> 0:13:13.240 after two thousand seven nine and got totally whips odd 0:13:13.840 --> 0:13:16.720 and in record all the time. I got out No. Eight, 0:13:16.840 --> 0:13:19.720 but I thought people crazy jumping back in in March 0:13:19.760 --> 0:13:22.160 O nine. And I've said on the sidelines for seven 0:13:22.240 --> 0:13:24.800 years that is not a rare state. No, it's it's 0:13:24.840 --> 0:13:27.240 it's more common than not. It's what behavioralism says, people. 0:13:27.240 --> 0:13:29.800 Do you know? So again, I was in the earlier 0:13:29.840 --> 0:13:32.800 segment I mentioned listening to John Bogo yesterday, and I 0:13:32.800 --> 0:13:35.160 admire the man greatly, but he said some things are 0:13:35.200 --> 0:13:38.199 just wrong, such as, uh, well, the first part of 0:13:38.360 --> 0:13:40.640 what he said here was right. He said that one 0:13:40.640 --> 0:13:43.000 of the things that slowed down the growth of passive 0:13:43.720 --> 0:13:46.160 was that the eighties and nineties or two decades back 0:13:46.160 --> 0:13:49.439 to back, with seventeen percent average annuals five hundred returns. 0:13:49.559 --> 0:13:52.360 That seems reasonable, and that's true. And then he said, 0:13:52.880 --> 0:13:56.600 and uh, the average mutual fund did a couple of 0:13:56.640 --> 0:13:58.800 percent worse than the equity mutual fund did a couple 0:13:58.840 --> 0:14:01.040 of percent worse. Not got about fifteen. And he said, 0:14:01.040 --> 0:14:04.360 since investor sounds probable, Yeah, he said, so, since investors 0:14:04.360 --> 0:14:07.240 were getting fifteen, they didn't really care. So much about 0:14:07.240 --> 0:14:09.760 relative returns because the high absolute returns and made him happy. 0:14:09.760 --> 0:14:13.720 All that sounds plausible, but the reality is that that's wrong. 0:14:14.120 --> 0:14:16.400 The reality is they didn't get anything light close to 0:14:16.480 --> 0:14:19.960 fifteen percent because as all the behavioral studies show people 0:14:20.000 --> 0:14:22.040 in and out of all the wrong times and they 0:14:22.080 --> 0:14:24.760 typically get about half the return of the equity funds 0:14:25.200 --> 0:14:26.960 because they end owed him at all the wrong time. 0:14:27.320 --> 0:14:31.680 The dl BAR studies shows people underperform their own investments, 0:14:31.720 --> 0:14:35.840 which on the surface sounds ridiculous, but for your reasons, 0:14:35.920 --> 0:14:40.240 it's normal for behavioral purposes. And so in reality, what 0:14:40.360 --> 0:14:42.520 he said that was wrong is that in that period 0:14:42.560 --> 0:14:45.120 people didn't get returns like our returns to look more 0:14:45.160 --> 0:14:49.120 like seven and they actually switched quite a lot from 0:14:49.200 --> 0:14:51.880 this to that and chase things. And in the mid 0:14:51.960 --> 0:14:55.000 nineties and nine, four and five, before the market took off, 0:14:55.080 --> 0:14:57.880 they get terribly desponded. And it was all that period 0:14:57.920 --> 0:15:02.880 where you know the uh. In UH two, George rowarka 0:15:02.920 --> 0:15:05.520 Bush is running for reelection and he's saying the recessions 0:15:05.560 --> 0:15:08.320 over and people saying, no, it's not, and Bill Clinton 0:15:08.360 --> 0:15:11.480 saying it's the economy stupid. Well, in retrospective recession, was over. 0:15:11.840 --> 0:15:15.000 That's not the way people felt, and people voted with 0:15:15.040 --> 0:15:17.920 the way they felt. And also they invested the way 0:15:17.960 --> 0:15:20.200 they felt. And that's the problem. People invest the way 0:15:20.240 --> 0:15:23.240 they feel, and the way they feel is almost always 0:15:23.280 --> 0:15:26.200 backward looking, and and they in and out at all 0:15:26.240 --> 0:15:28.720 the wrong times, and that generates much more cost than 0:15:28.800 --> 0:15:31.240 anything else. And there's all these studies going back to 0:15:31.320 --> 0:15:34.240 things like dal Bar that are perverse in that they 0:15:34.320 --> 0:15:37.240 show that things like load mutual funds do worse than 0:15:37.320 --> 0:15:39.360 no load mutual funds. But the people that invest in 0:15:39.400 --> 0:15:41.480 the load mutual funds do better than the people invest 0:15:41.520 --> 0:15:43.280 in the no load mutual funds because they feel trapped 0:15:43.320 --> 0:15:45.040 in them, and they hold them much longer, which is 0:15:45.120 --> 0:15:47.600 very perverse, that is, you know. And then and then 0:15:47.640 --> 0:15:50.760 everybody says, I would never do that, And then of 0:15:50.880 --> 0:15:54.760 course that's true for a very small percentage of the population. 0:15:54.880 --> 0:15:57.440 Most people do that. I saw something very recently, and 0:15:57.640 --> 0:16:00.200 I don't I don't want to cite the wrong them 0:16:00.240 --> 0:16:03.160 that wrote it, but they pointed out the difference between 0:16:03.400 --> 0:16:08.119 soft economic data like sentiment and actual hard and economic 0:16:08.280 --> 0:16:12.320 data like GDP seals, etcetera. And they said the gap 0:16:12.440 --> 0:16:15.760 between the sentiment and the reality is the biggest it's 0:16:15.800 --> 0:16:18.080 been as long as you've been tracking such. So another 0:16:18.160 --> 0:16:21.280 way to say that verry that I've become fond of 0:16:21.760 --> 0:16:26.840 is that economic marginality, as taught by Alfred Marshall, marginality 0:16:26.960 --> 0:16:31.960 has been marginalized. Marginality has been marginalized. Yes, the reality 0:16:32.040 --> 0:16:37.120 of economic marginality is that intuitively, an idiot knows that 0:16:37.800 --> 0:16:42.600 the difference between the viability of a loan for a 0:16:42.760 --> 0:16:46.320 CAPEX project at today's interest rates versus half a point 0:16:46.440 --> 0:16:49.360 higher or lower should be immaterial to whether the CAPEX 0:16:49.360 --> 0:16:51.240 project should go forward or not, because if you can't 0:16:51.320 --> 0:16:54.160 justify the return at a half a point higher or 0:16:54.240 --> 0:16:55.680 lower from where we are today, it's got to be 0:16:55.720 --> 0:16:59.040 a pretty lousy project to begin with. And the fact 0:16:59.200 --> 0:17:02.680 is that it really more about what hasn't been marginalized 0:17:02.960 --> 0:17:05.360 is a shift in animal spirits, which is your sentiment point, 0:17:05.880 --> 0:17:10.400 and we really need to find ourselves in a CAPEX 0:17:10.480 --> 0:17:15.119 sense and in all other ways. Uh, moving toward that 0:17:15.280 --> 0:17:20.560 animal spirit that says I'm not afraid because of agency risk, 0:17:20.680 --> 0:17:23.240 which you know after two thousand nine CEO s were 0:17:23.280 --> 0:17:28.800 hunkered down for for agency purposes. I am optimistic that 0:17:28.960 --> 0:17:31.920 this project will work, and I'm going to invest in 0:17:32.000 --> 0:17:35.320 this project and make this improvement for the benefit of 0:17:35.720 --> 0:17:40.080 my customers and the world. And that's really a sentiment issue. 0:17:40.119 --> 0:17:43.560 It's not really uh, interest rates or a quarter point higher, 0:17:43.640 --> 0:17:45.880 So I'm not going to move forward. I'm very rid Helts. 0:17:45.960 --> 0:17:49.359 You're listening to Masters in Business on Bloomberg Radio. My 0:17:49.520 --> 0:17:53.040 guest today is Ken Fisher. He is the executive chairman 0:17:53.160 --> 0:17:58.159 and co chief investment officer of Fisher Investments, a twenty 0:17:58.880 --> 0:18:02.919 person firm manage in just under eighty billion dollars. He's 0:18:02.960 --> 0:18:06.080 the author of a number of best selling books on 0:18:06.280 --> 0:18:09.919 markets and investing. Let's talk a little bit about an 0:18:09.960 --> 0:18:14.560 insurance product that you're pretty vocal about. I keep reading 0:18:15.119 --> 0:18:19.480 why does Ken Fisher hate annuities? That that's an advertisement 0:18:19.640 --> 0:18:23.720 that I've seen online. Tell us about your views of annuities. 0:18:25.000 --> 0:18:27.760 Let's see. Um, let me just say the simple line, 0:18:27.800 --> 0:18:33.639 I hate annuities. Uh uh so why why do you? 0:18:33.880 --> 0:18:37.160 First of all, let's define annuities. For for most people, 0:18:37.280 --> 0:18:41.359 it's a tax deferred products that is sold by insurance 0:18:41.400 --> 0:18:49.040 breakers with a fairly substantial six eight nine commission up 0:18:49.119 --> 0:18:52.960 front that essentially can do more or more than nine 0:18:53.000 --> 0:18:59.440 percentidden and essentially is a rapper around mutual funds, equities, bonds, 0:18:59.480 --> 0:19:01.119 whatever you want to put in there that you can 0:19:01.200 --> 0:19:04.240 go out and purchase from a broker. That is that 0:19:04.320 --> 0:19:09.320 a fair assessment. Annuities are a lot of different things. 0:19:09.680 --> 0:19:14.640 Annuities are a contract of some type that is very complicated, 0:19:15.359 --> 0:19:19.360 almost always that are almost never really understood by the consumer, 0:19:19.520 --> 0:19:23.160 even though they often think they understand them, and they're 0:19:23.240 --> 0:19:28.000 almost always sold on a misleading basis. When I say that, 0:19:28.320 --> 0:19:31.359 when you actually take the contract and go through it 0:19:31.520 --> 0:19:36.040 with the customer and and then call the insurance the 0:19:36.119 --> 0:19:38.119 number that's associated with the contract, where you get a 0:19:38.119 --> 0:19:41.399 service person, not salesperson, and you say not does this 0:19:41.560 --> 0:19:43.600 mean this? Or does it mean that? And then they 0:19:43.680 --> 0:19:46.119 tell you what it really means. The customer is almost 0:19:46.160 --> 0:19:49.520 always appalled, and they in that regard I say, they're 0:19:49.520 --> 0:19:52.320 always almost always sold on a misleading basis. So you know, 0:19:52.400 --> 0:19:54.560 the sales guy will say something like, well where else 0:19:54.640 --> 0:19:58.280 can you get us guaranteed six percent return? Except for 0:19:58.359 --> 0:20:00.200 that's going to be a return of their cap will 0:20:00.240 --> 0:20:02.639 not a return of not an income return. It's not 0:20:02.720 --> 0:20:05.000 a return like we think of in the investing world. 0:20:05.320 --> 0:20:07.359 It's a return of their capital, which anybody can do 0:20:07.440 --> 0:20:10.320 for themselves just by taking their principle, putting it wherever 0:20:10.520 --> 0:20:13.680 they want, and taking x percent of it out. On 0:20:13.800 --> 0:20:16.040 that basis, you can have a thirty return until you 0:20:16.119 --> 0:20:18.479 run out of money. You just return your capital, right, 0:20:19.280 --> 0:20:22.000 So so what about invested in nothing and have a 0:20:22.480 --> 0:20:25.520 percent return? One of the more interesting aspects of the 0:20:25.760 --> 0:20:29.800 change in fiduciary rules, which is UM at this point, 0:20:29.800 --> 0:20:32.240 I assume everybody knows, but on the off case that 0:20:32.359 --> 0:20:35.919 we're not, people aren't as tracking this as closely as 0:20:35.960 --> 0:20:40.240 we are. Uh. The last administration changed the rule for 0:20:40.840 --> 0:20:44.399 governing retirement plans and that could include four oh one 0:20:44.480 --> 0:20:46.920 ks and four three b s and I risen things 0:20:46.960 --> 0:20:50.080 like that and said that the advisor has to treat 0:20:50.119 --> 0:20:53.800 the client UM has to operate in the client's best interest, 0:20:54.280 --> 0:20:57.159 which the current administration is not sure they want to 0:20:57.280 --> 0:21:01.560 continue that rule. But since the fiduciary rule chains were announced, 0:21:02.200 --> 0:21:05.919 many of the big insurance insurance companies that underwrite annuities 0:21:06.240 --> 0:21:09.600 have seen their sales fall off a cliff, especially with 0:21:09.720 --> 0:21:12.760 people who service four own case and four three b s. 0:21:13.200 --> 0:21:15.640 So what what is your view of the fiduciary rule 0:21:15.720 --> 0:21:19.000 and what that might mean for for annuity sales. I 0:21:19.119 --> 0:21:24.840 think it's a stupid rule with great intent when you 0:21:24.920 --> 0:21:28.800 actually look at the devil in details. Devil in the 0:21:28.880 --> 0:21:33.240 details is that it's largely fraudulent in that. Uh, you 0:21:33.359 --> 0:21:38.879 get the vice exemption best interest contract exemption, which has 0:21:38.960 --> 0:21:42.119 some specific wording that you're allowed to kind of bury 0:21:42.200 --> 0:21:45.440 in a big complicated contract. So the customer, you know, 0:21:45.600 --> 0:21:49.200 it's like sign here, signed there. Uh, you know, I 0:21:49.280 --> 0:21:51.399 got your best interests at heart, but the government makes 0:21:51.440 --> 0:21:54.040 me have you do all this paperwork. So a cleaner, 0:21:54.119 --> 0:21:57.080 simpler best interest client and the sentence would have been 0:21:57.160 --> 0:22:00.800 better a be there's no governmental enforcement of this. What's, however, zero. 0:22:01.640 --> 0:22:05.840 The only company compliance enforcing these sort of things, whether 0:22:06.000 --> 0:22:08.080 the insurance I doubt that they'll even know, they haven't 0:22:08.119 --> 0:22:12.840 known in the past. Thirdly, uh, the only enforcement is 0:22:12.920 --> 0:22:16.520 a claimate's lawyer. This is a This is set up 0:22:16.560 --> 0:22:20.000 for PIABA, the Public Investor's Arbitration Bar Association, of which 0:22:20.000 --> 0:22:22.040 I don't have a problem with PIABA, but the reality 0:22:22.160 --> 0:22:25.280 is it is the only enforcement arm of this. There 0:22:25.440 --> 0:22:28.160 is no part where the government comes in at any 0:22:28.200 --> 0:22:33.560 point in time and says you company X have violated 0:22:33.600 --> 0:22:39.119 the fiduciary standard. Therefore, and therefore we are doing something 0:22:39.400 --> 0:22:43.720 to you that doesn't happen under this law. This law, 0:22:43.840 --> 0:22:47.639 in my opinion, toothless Yes, well, no, no, I wouldn't 0:22:47.680 --> 0:22:49.159 go that far. It's kind of like it's got a 0:22:49.320 --> 0:22:52.200 rotted tooth dangling out the side of an otherwise empty mouth, 0:22:52.520 --> 0:22:55.280 and that rotted tooth is the is the claimate's bar. 0:22:56.480 --> 0:22:59.480