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Debunkery: Learn It, Do It, and Profit From It—Seeing Through Wall Street's Money-Killing Myths

Book Description

Legendary money manager Ken Fisher outlines the most common—and costly—mistakes investors make.

  • Small cap stocks are best for all time. Bunk!

  • A trade deficit is bad for markets. Bunk!

  • Stocks can't rise on high unemployment. Bunk!

Many investors think they are safest following widely accepted Wall Street wisdom—but much of Wall Street wisdom isn't so wise. In fact, it can be costly bunk.

In Debunkery: Learn It, Do It, and Profit From It—Seeing Through Wall Street's Money-Killing Myths, Ken Fisher—named one of the 30 most influential individuals of the last three decades by Investment Advisor magazine—details why so many investors fail to get the long-term results they desire. The short answer is many investors fail to question if what they believe is true—and are therefore blinded by tradition, biases, ideology, or any number of cognitive errors.

Your goal as an investor shouldn't be to be error-free—that's impossible. Rather, to be more successful, you should aim to lower your error rate. Debunkery gets you started by debunking 50 common myths—but that's just the beginning. It also gives you the tools you need to continue to do your own debunkery for the rest of your investing career.

Table of Contents

  1. FISHER INVESTMENTS PRESS
  2. Title Page
  3. Copyright Page
  4. Acknowledgments
  5. Introduction
    1. Reduce Your Error Rate . . . If You Can
    2. Debunkery 101
    3. Standing Convention on Its Head
    4. Misperceptions on Parade
  6. PART 1 - BASIC BUNK TO MAKE YOU BROKE
    1. BUNK 1 - BONDS ARE SAFER THAN STOCKS
      1. Bonds Can Be Negative, Too
      2. Given Just a Bit of Time
      3. Inflation’s Bite
    2. BUNK 2 - WELL-RESTED INVESTORS ARE BETTER INVESTORS
      1. Are You So Sure Stocks Are the Problem?
      2. Investing Is a Probabilities Game
    3. BUNK 3 - RETIREES MUST BE CONSERVATIVE
      1. Longer Lives, Longer Time Horizons
      2. Aged Poverty Is Cruel!
    4. BUNK 4 - AGE EQUALS ASSET ALLOCATION
      1. Is Age All That Matters?
      2. Determining Your Benchmark—Three Things
    5. BUNK 5 - YOU SHOULD EXPECT AVERAGE RETURNS
      1. Normal Returns Are Extreme
    6. BUNK 6 - “CAPITAL PRESERVATION AND GROWTH” IS POSSIBLE!
      1. True Capital Preservation as a Goal Is Very Rare
    7. BUNK 7 - TRUST YOUR GUT
      1. Selective Memory and Other Messy Biases
      2. Losses Feel Worse Than Gains Feel Good
    8. BUNK 8 - ONE BIG BEAR AND YOU’RE DONE
      1. Big Bear Markets Mean a Big Bull Bounce
      2. Fooled by Averages
    9. BUNK 9 - MAKE SURE IT’S A BULL BEFORE DIVING IN
      1. A Classic V
    10. BUNK 10 - GROWTH IS BEST FOR ALL TIME. NO, VALUE. NO, SMALL CAPS
      1. Chasing Heat
      2. Supply and Demand (and Investment Bankers)
    11. BUNK 11 - A GOOD CON ARTIST IS HARD TO SPOT
      1. Heed These Five Signs
      2. Custody Is the Number One Sign
  7. PART 2 - WALL STREET “WISDOM”
    1. BUNK 12 - STOP-LOSSES STOP LOSSES!
      1. How Do They “Work”?
      2. Pick a Level, Any Level
    2. BUNK 13 - COVERED CALLS . . . GOTCHA COVERED
      1. Covered Calls Are Just Like Naked Puts?
    3. BUNK 14 - DOLLAR COST AVERAGING—LOWER RISK, BETTER RETURNS
      1. DCA—A Fee Bonanza
    4. BUNK 15 - VARIABLE ANNUITIES ARE ALL UPSIDE, NO DOWNSIDE
      1. Two Basic Types
      2. Big Fees and Tax Trauma
    5. BUNK 16 - EQUITY-INDEXED ANNUITIES—BETTER THAN NORMAL ANNUITIES
      1. The First Pitch
      2. The Second Pitch
    6. BUNK 17 - PASSIVE INVESTING IS EASY
      1. Passive Is (NOT) Easy
      2. If Passive Were Easy, People Would Do It
      3. Other People Are Like That! Not Me . . .
    7. BUNK 18 - DO BETTER WITH MUTUAL FUNDS BY SENDING YOUR SPOUSE ON A SHOPPING SPREE
      1. “Cheap” Can Be Relative
    8. BUNK 19 - BETA MEASURES RISK
      1. Past Performance Is Never Indicative of Future Results
      2. Categories That Fall Most Bounce Most
    9. BUNK 20 - EQUITY RISK PREMIUMS—FORECASTING FUTURE RETURNS WITH EASE
      1. Long-Distant Future Supply
      2. Meager Assumptions
    10. BUNK 21 - WHEN THE VIX IS HIGH, IT’S TIME TO BUY
      1. Coincident Plus Relative Equal Useless
      2. Useless . . . But Also Inconsistent!
    11. BUNK 22 - BE CONFIDENT ON CONSUMER CONFIDENCE
      1. Confidence Is Coincident
      2. Not Contrarian Either. Just Useless.
    12. BUNK 23 - ALL HAIL THE MIGHTY DOW!
      1. What’s So Wrong With the Dow?
      2. Price-Weighted Insanity
      3. Stock Splits and Splitting Headaches
  8. PART 3 - “EVERYONE KNOWS”
    1. BUNK 24 - SO GOES JANUARY
      1. Cognitive Errors Galore
      2. Check the Box
    2. BUNK 25 - SELL IN MAY
      1. Sell in May . . . When? And Then What?
    3. BUNK 26 - LOW P/ES MEAN LOW RISK
      1. Fear of Heights
      2. Two Moving Parts to a P/E
    4. BUNK 27 - A STRONG DOLLAR IS SUPER
      1. Dollar Dilemma
      2. Put the Dollar in a Box
      3. Where’s the Zigzag?
    5. BUNK 28 - DON’T FIGHT THE FED
      1. A Monetary Phenomenon
      2. Exit Jitters
    6. BUNK 29 - INTEREST PAYS DIVIDENDS
      1. Homegrown Dividends
    7. BUNK 30 - BUY A 5% CD FOR 5% CASH FLOW—EASY!
      1. The Silent Killer
    8. BUNK 31 - BABY BOOMERS RETIRE, WORLD ENDS, ETC.
      1. Boomers Have a Long Time Horizon
      2. Bankrupting Social Security
      3. Can’t Stop Capital Markets
    9. BUNK 32 - CONCENTRATE TO BUILD WEALTH
      1. Taking Stock in Your Employer
      2. The Road More Traveled
      3. Nuts and Bolts and Insider Trading
      4. Not Gone, Just Down Big
  9. PART 4 - HISTORY LESSONS
    1. BUNK 33 - PRAY FOR BUDGET SURPLUSES
      1. If Everyone Believes It, Ask If It’s True
      2. Stupid Government Debt and Velocity
    2. BUNK 34 - HIGH UNEMPLOYMENT IS A KILLER
      1. Unemployment Up, Stocks Up Too?
      2. Dropping Unemployment Lags the Economy
    3. BUNK 35 - WITH GOLD, YOU’RE GOLDEN
      1. Booms and Busts—But Mostly Busts
      2. Timing Pros Only, Please
    4. BUNK 36 - STOCKS LOVE LOWER TAXES
      1. Cap Gains—A Tax on Selling?
      2. Cap Gains Changes and Impacts
      3. It’s Only Half the Issue
    5. BUNK 37 - OIL AND STOCKS SEESAW
      1. A Dollar Spent Is a Dollar Spent
      2. Long Term—No Correlation
      3. Short-Lived Correlation
      4. Supply and Demand
    6. BUNK 38 - SWINE FLU, SARS, EBOLA, AND OTHER VIRAL DISASTERS MAKE MARKETS SICK
      1. No Fear of Swine (or Any Other) Flu
    7. BUNK 39 - CONSUMERS ARE KING
      1. The Big Decline Wasn’t Consumers
      2. Consumer Spending Is Stable
    8. BUNK 40 - PRESIDENTIAL TERM CYCLES ARE STOCK MARKET VOODOO
      1. Predictable Patterns and Fundamental Drivers
      2. Lazy Legislators Mean Happy Markets
    9. BUNK 41 - MY POLITICAL PARTY IS BEST FOR STOCKS
      1. Party Can Matter—At Certain Times
      2. A Perverse Inverse
    10. BUNK 42 - STOCK RETURNS ARE TOO HIGH AND MUST FALL
      1. Scary Scaling
  10. PART 5 - IT’S A GREAT BIG WORLD!
    1. BUNK 43 - FOREIGN STOCKS JUST FEEL SO . . . FOREIGN
      1. US and Non-US Stocks—More Correlated Than You Think
    2. BUNK 44 - WHO NEEDS FOREIGN?
      1. US and Non-US Trade Leadership—Irregularly
      2. Opportunities to Manage Risk
    3. BUNK 45 - BIG DEBT IS NATIONAL DEATH
      1. A Long History of Big Debt
      2. Bigger Debt Abroad!
    4. BUNK 46 - AMERICA CAN’T HANDLE ITS DEBT
      1. Low Interest Rates Lower Costs
    5. BUNK 47 - INDEBTED TO CHINA
      1. Investors Don’t Invest Out of Charity
    6. BUNK 48 - TRADE DEFICITS MAKE DEFICIENT MARKETS
      1. You Are Your Own Trade Deficit
      2. Scale It to See It
      3. Which Country Would You Rather Be?
    7. BUNK 49 - GDP MAKES STOCKS GROW
      1. Stocks Move First—Up or Down
      2. Huge Growth—Wildly Variable Returns
    8. BUNK 50 - TERRORISM TERRORIZES STOCKS
      1. Markets Globally Are Resilient
      2. History Shows Stocks Don’t Scare
  11. NOTES
  12. ABOUT THE AUTHORS
  13. INDEX