Fisher Investments on Financials

CHAPTER 6

THE TOP-DOWN METHOD

So if you’re bullish on Financials, how much of your portfolio should you put in Financials stocks? Twenty-five percent? Fifty? One hundred percent? This question concerns portfolio management. Most investors concern themselves only with individual companies (“I like Bank of America, so I’ll buy some”) without considering how they fit into their overall portfolio. But this is no way to manage your money.

In this part of the book, we show you how to analyze Financials companies like a top-down portfolio manager. This includes a full description of the top-down method, how to use benchmarks and how the top-down method applies to the Financials sector. We then explore security analysis in Chapter 7, where we provide a framework for analyzing any company and discuss many of the important questions to ask when analyzing Financials companies. Finally, in Chapter 8, we conclude by giving a few examples of specific investing strategies for the Financials sector.

INVESTING IS A SCIENCE

Too many investors today think investing has “rules”—that all one must do to succeed in investing for the long run is find the right set of investing rules. But that simply doesn’t work. Why? All well-known and widely discussed information is already reflected in stock prices. This is a basic tenet of market theory commonly referred to as “market efficiency.” So if you see a headline about a stock you follow, there’s no use trading on that information—it’s already priced in. ...