Wednesday, March 02, 2011

What does it mean when Ken Fisher is no longer Bullish?

Ken Fisher is a legendary investor. Author of many books, record holder for longest tenure as a Forbes investment advisor, a billionaire in his own right, and son of legendary investor Philip Fisher, whose book Common Stocks, Uncommon Profits is a must read for anyone who picks stocks.

He is also a near perma bull. He favors lots of cyclical measures - presidential cycles, bull market cycles and the like. I must admit, I criticised him when he predicted the 2009 bull market, (heaping on the point that he had utterly failed to see - or at least to write about - the implosion of the financial sector. He was right, and I was wrong.

But even he is now predicting a much slower growth period, and with slower returns, it becomes more important to select value and quality. He has some interesting picks. Couple of drug companies, which I usually avoid, since I cannot evaluate their pipelines, and a few other odds and ends. Most instersting picks in my view, are CL and ENL - Reed Elsevier, a company that publishes lots of academic and legal journals. In the US you are more likely to have heard of its LexisNexis service. Incredibly expensive, it allows folks like PhDs and laywers to search reams of documents for specific terms. Definately one to investigate.

I continue to own CL, and have yet to publish my DCF for it. I must say that at $78 - it isn't so far away from intrinsic value, in my opinion. Still, I believe it is a good place to earn a yield of year 3% with little risk of capital loss, since the underyling business is strong. Growth prospects are better than one might imagine, because the company is well positioned in global markets, particularly South America and Asia, where newly middle class populations are focusing more and more on proper healthcare and homecare, it's core product segments.

But ultimately, when Ken Fisher gets cautious, I start to think that the markets are really headed for a fall.

Given my current cash-heavy allocation, this would suit me just fine - I believe there will be another March 2009 like moment. Seriously, valuations are hardly at levels that indicate stocks are cheap. I still believe that after the biggest secular bull market of all time, we are in a secular bear. When that next moment comes, with S&P500 below 800, I will be a buyer. For now, I just pick around the margins, and remain defensive.

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