Ken Fisher: Success Has A Thousand Fathers, But Failure Is A Bastard

Johnny HopkinsKen FisherLeave a Comment

Earlier in the week we provided 4 book recommendations from Michael Burry, one of which was Super Stocks by investing legend Ken Fisher. In the book Super Stocks Fisher provides a great illustration of how investors mislead themselves in a section titled – Success has a thousand fathers, but failure is a bastard. Here’s an excerpt from the book:

We’ve seen that even outstanding managements make mistakes. We’ve seen why and what happens when they do. We’ve seen that it is perfectly normal and can even be anticipated as a sign of evolutionary progress in management. The fundamental problem is that investors develop expectations for companies which originally maybe much too high.

It is rare for a management to deceive a professional investor. It is almost always the investors who deceive themselves. Suppose a portfolio manager or analyst has owned or recommended a high priced stock which gets into trouble and drops precipitously. Most will usually sell out the stock at a loss. Disgusted with the management that “misled” them, they seldom buy the stock back later. Later is a very good time to buy. It may be the best time.

When a stock goes up, individual investors claim credit for being smart enough to have bought low. When a stock goes down, few holders advertise their mistake. This is only human nature. An older gentleman I know at Paine Webber in Boston used to comment on this phenomenon by saying, “Success has a thousand fathers, but failure is a bastard.” Very few people volunteer their failures. Individuals who have lost money in a stock are more apt to look for someone else to blame.

We’ve seen that investors can have expectations for a company which are much too high. Likewise, we’ve seen that a growth glitch can cause too low an estimation of the future of a company. Obviously, neither view is completely correct. Is there no happy medium? Was the original financial community view of the company as a wonderful business more or less correct than their later view of the company as a bad business?

There are no hard-and-fast rules. This is the heart of the investment problem. We are discussing Super Companies. If it is truly a Super Company, the original perception, when the financial community thought it was a Super Company, is more correct than the later more-dismal view.

Management, having learned from its mistakes, becomes unlikely to make others nearly so significant for years to come. The company is apt to continue rapid growth for a very long time.

With many of these stocks, the best thing to do is to hold them close to forever. First, one must buy them correctly. That requires taking advantage of the recurring cycle of financial community condemnation of a company suffering a glitch.

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