Ken Fisher's Forecasting Accuracy
What makes a successful stock market forecaster? Even history's legendary investors like Ken Fisher don't have perfect track records–yet it's easy to find Internet concerns about a less-than-perfect track record. If no one in the history of capital markets has a perfect record, are the concerns credible?
And how can someone even measure a forecaster like Ken Fisher's history of success? CXO Advisory Group, an independent research firm, developed a methodology for ranking individuals who make public stock market forecasts. With nearly 5,000 measurements for about 60 investing/trading 'gurus,' we believe CXO has critical mass for assessing the forecasting acumen of the group and ranking experts according to the accuracy of their past forecasts. Note: CXO purposefully restricts reviews to publicly available material, putting itself "in the place of an individual investor trying to locate value in the marketplace."
How has the average public forecaster ranked? The overall accuracy of the group they measure based on both raw forecast count and on the average of forecaster accuracies (weighting each individual equally) is 47%.i In other words, on average, the group of public forecasters were wrong slightly more than they were right. Is this unexpected? In Ken Fisher's 2010 book, he says of investing: "The goal isn't to be error-free; it's to be right more than wrong over time. Overwhelmingly, most investors are wrong more than they're right. When you're wrong more than right, you lag the market. When you're right more than wrong, you may become one of the small percentages of investors, amateur or professional, who beat the market."ii
Ken Fisher's Performance
How does Ken Fisher rank? Ken Fisher, CEO of Fisher Investments, has a 60+% accuracy rating – putting him among the top-rated gurus (who have an accuracy rating).i His CXO stock market forecasting rating is based on Ken Fisher's Forbes magazine columns. CXO summarizes the annual performance of Ken Fisher's public stock picks relative to matching investment in the S&P 500 Index, as calculated by Forbes, for calendar years 1998 through 2009.iii
Another way to assess Ken Fisher's accuracy is by looking at his Forbes' report card each year. Since Forbes started measuring returns in 1997 (for calendar year 1996), Ken Fisher's picks have outpaced the S&P 500 by 5.2% on average annually.iv (Note: this performance is hypothetical and reflects Forbes magazine's calculation of simulated trades based on Ken Fisher's Forbes picks.)
Ken Fisher Addresses Performance Questions
Excerpts from Ken Fisher, CEO of Fisher Investments New York Times bestseller How to Smell a Rat:
"Every great money manager has had bad years. Even Warren Buffett. It's seeing the bad years, out front and in the open in the history of their returns, that makes you know they're real. Honest money managers and decision makers aren't ashamed of admitting their bad years or admitting mistakes. In my 2006 book, The Only Three Questions That Count, I documented that the most legendary investors of all time have only been right about 70 percent of the time. That means they were wrong about 30 percent of the time. Unfortunately, that rightness and wrongness often tends to come in clumpy patches that, at the time, can feel like they go on forever. But investing is a probabilities activity not a certainties activity, and being wrong 30 percent of the time is a perfectly marvelous success rate."
"Then, too, the extended clumpy patches where an adviser is right year after year or wrong for over a year show up in the history of their returns, but neither are individually predictive of the manager's long-term past or future ability to manage money and get above-average results. Said another way: Above-average returns in the long term come with individual years that stink. And you need to accept that because it is in seeing the stinking years that you know a manager is actually honest."
"Con artists never display bad years. They just don't. Their returns are too good to be true because, by definition, they aren't true. Bad years scare daunted investors away and give them a clear sense that lightning can strike. They hate lightning. Con artists know that and give them what they want--smooth, never scary return displays. Someday, a rat will figure out how to package a return display that includes bad years to fake integrity while somehow packaging it so it doesn't scare fearful investors away; but it hasn't come out of the woodwork yet."
Ken Fisher's Ranking
Based on CXO's analysis, it seems the average forecaster is only right about half the time, and even the very best are only accurate about two thirds of the time. Anyone can question an investor's performance, but first, one must consider the very best investors have been wrong at least a third of the time. Indeed, an error-free track record–one that seems "too good to be true"–could be a sign of trouble. (Ken Fisher wrote about this and other red flags to watch for in his 2009 book How to Smell a Rat: The Five Signs of Financial Fraud.)
Is Ken Fisher's history of market forecasting perfect? No–of course not. However, his ranking with CXO is clear.