Ken Fisher
Founder and executive chairman of Fisher Investments
Born 1950
Introduced the price-to-sales ratio to a wide audience, wrote a Forbes column for more than three decades, and built a large independent advisory firm.
Biography
Ken Fisher, born in San Francisco in 1950, is an American investor and writer, and the son of Philip Fisher, whose Common Stocks and Uncommon Profits shaped a generation of growth investing. He studied economics at what is now Cal Poly Humboldt, completing a two-year degree in 1972, and started an investment advisory business in 1979 that grew into Fisher Investments.
His first book, Super Stocks, appeared in 1984 and introduced the price-to-sales ratio to a wide readership. The argument was that earnings for a company going through a bad patch can collapse or turn negative, which makes the price-to-earnings ratio useless at exactly the moment a buyer most wants a valuation. Revenue is far steadier, so comparing price with sales gives a usable reading when the earnings-based measure has stopped working. He has since noted that the measure became widely known and is less useful for that reason, which is an unusually direct thing for an author to say about his own contribution.
He wrote the Portfolio Strategy column in Forbes from 1984 to 2017, one of the longest runs by any columnist at the magazine, and published a series of books aimed at general readers. The Only Three Questions That Count, from 2006, sets out the framework he is best known for: an investor makes money only by knowing something the market has not already priced, so the useful questions are what you believe that is actually false, what you can work out that others cannot, and what your own brain is doing to you.
Fisher Investments grew into a large independent advisory firm that manages money for individuals and institutions and advertises heavily to reach them. He stepped back from the chief executive role in 2016 and remains executive chairman and co-chief investment officer.
Career timeline
- 1950Born in San Francisco, California, the son of the investor Philip Fisher.
- 1972Completes a two-year economics degree in northern California.
- 1979Starts the advisory business that becomes Fisher Investments.
- 1984Publishes Super Stocks and begins his Forbes column, which runs until 2017.
- 1987Publishes The Wall Street Waltz, a book of long-run market charts.
- 1993Publishes 100 Minds That Made the Market, short lives of the people who built the industry.
- 2006Publishes The Only Three Questions That Count.
- 2016Steps back from the chief executive role and becomes executive chairman.
- 2019Remarks at an industry conference lead a number of institutional clients to withdraw their money.
Investment philosophy
His framework starts from a single question: what do you know that the market does not already reflect in the price? If the answer is nothing, then whatever else the analysis contains, it cannot produce an advantage, because the information is already in the number on the screen. That test is deliberately unkind to most of what passes for research, and it is the organising idea behind everything he has written since.
From there he works in three parts. The first is finding a widely held belief that is measurably false, which is where most of his writing lives, because a false consensus is the only reliable source of mispricing. The second is finding something you can measure that others are not measuring, which is what the price-to-sales ratio was in the early 1980s and stopped being once everyone had it. The third is watching your own head, on the reasoning that the mistakes you make are more predictable than the market is.
He is a top-down forecaster rather than a company picker, which separates him from his father. The starting point is a view on the broad market and on which parts of it should do relatively well, and individual holdings follow from that. He has argued consistently that most investors would be better served by staying invested through frightening periods than by moving to cash, and much of his popular writing is aimed at the specific fears that cause people to sell.
Key ideas
Tap any idea to expand a plain-English explanation, why it matters, and where to learn more.
The price-to-sales ratio
Comparing a company's market value with its revenue rather than its earnings, which is useful when earnings are depressed or absent.
Earnings can swing violently or disappear during a bad year, which makes the usual valuation ratio meaningless exactly when a buyer wants one. Revenue is far more stable.
A manufacturer in a bad year may show almost no profit and an absurd price-to-earnings figure, while its price compared with sales still says something sensible.
Know something others do not
The test that an advantage can only come from information or reasoning the market has not already priced in.
It rules out most research activity in one line, and it redirects effort toward finding where the consensus is actually wrong.
Reading a widely covered earnings report carefully is work, but it cannot be an edge, because everyone else has read the same report.
An indicator stops working once it is popular
The observation that a measure loses its usefulness as it becomes widely adopted, because the information it carried is then in the price.
It explains why yesterday's reliable screen is today's ordinary one, and why a search for edge has to keep moving.
A ratio that identified overlooked companies in the early 1980s was in every screening tool a decade later and no longer pointed anywhere unusual.
Your own brain is the third question
The practice of treating your own predictable reactions as a factor to be managed alongside the market itself.
The errors an investor makes repeat more reliably than any market pattern does, which makes them the more tractable problem.
Selling after a sharp fall feels like risk management and is usually the same instinct that made the position feel safe at a higher price.
Market history as a corrective
Using long runs of historical data to test whether a widely believed claim about markets has actually happened before.
Most confident statements about what markets always do turn out to be describing one remembered decade rather than the record.
A belief that a particular political or economic condition reliably produces a bad year usually dissolves once several centuries of data are laid out.
Major contributions
- Introduced the price-to-sales ratio to a general investing audience and showed why it works where earnings-based measures break down.
- Wrote a Forbes column for more than three decades, one of the longest continuous runs the magazine has had.
- Built a large independent investment advisory firm serving individual investors directly rather than through intermediaries.
- Produced a body of popular writing aimed specifically at testing widely believed market claims against the historical record.
- Wrote a readable history of the people who built the financial industry, which brought a sense of its past to ordinary readers.
Major successes
- Started an advisory business in 1979 and grew it into one of the larger independent investment advisers in the United States.
- Wrote the Portfolio Strategy column in Forbes from 1984 to 2017, an unusually long run for any financial columnist.
- Published Super Stocks in 1984, which brought the price-to-sales ratio into common use among investors.
- Wrote eleven books on investing and personal finance, several of which reached national bestseller lists.
- Built a business model that reaches individual investors directly, which was uncommon when the firm started.
Important books
- Super Stocks1984
His first book, and the one that introduced the price-to-sales ratio. Still the clearest statement of why a revenue-based measure survives a bad earnings year.
- The Wall Street Waltz1987
A book built around long-run charts, each used to test a claim about markets that most people believe without checking.
- 100 Minds That Made the Market1993
Short biographies of the people who built the financial industry, from exchange founders to fraudsters. History rather than method.
- The Only Three Questions That Count2006
The fullest statement of his framework: what you believe that is false, what you can work out that others cannot, and what your own brain is doing.
- Beat the Crowd2015
On why following the consensus and reflexively opposing it are both losing approaches, and what the harder third option involves.
Influence on investors
The price-to-sales ratio is now a standard field in every screening tool, and its presence there is largely down to him. That is an odd kind of legacy, because the measure became less useful precisely as it became universal, which is a point he has made himself rather than leaving to critics.
His larger influence on ordinary investors came through the column and the books, which spent thirty years telling a general readership that widely repeated market claims usually fail when tested against long historical records. That habit of asking whether a confident statement has actually happened before is more durable than any single indicator.
Criticisms and debates
A balanced view includes the main criticisms and open debates, presented neutrally.
- In October 2019 he made remarks at an industry conference that were widely reported as demeaning to women. Several public pension funds and other institutional clients withdrew billions of dollars in the following weeks. He apologised, and the firm's assets under management later recovered and grew.
- The firm charges active management fees, and the long-running evidence that most active managers do not beat a low-cost index fund after costs applies to it as much as to anyone else.
- It advertises very heavily to reach individual investors, and critics argue that a marketing-led model attracts clients on the strength of the advertising rather than of the strategy.
- Top-down market forecasting is the part of investing with the weakest evidence behind it, and his public market calls have been mixed in the way that market calls generally are.
- His writing style is combative and certain, which makes it readable and also makes it hard to tell which of his claims rest on strong evidence and which rest on his confidence in them.
Lessons for investors
Plain-English takeaways. Context for learning, not advice to buy or sell anything.
- 1If the information is public and widely read, it cannot be your edge no matter how carefully you read it.
- 2A valuation measure that everyone uses has already been priced in, so an indicator becoming popular is the beginning of its decline.
- 3When earnings collapse, a price-to-earnings ratio stops meaning anything, and a revenue-based measure still says something.
- 4Most confident claims about what markets always do fall apart when you check them against a long enough record.
Frequently asked questions
Who is Ken Fisher?
Ken Fisher is an American investor and writer born in 1950, the son of the investor Philip Fisher. He founded Fisher Investments in 1979, wrote a Forbes column from 1984 to 2017, and popularised the price-to-sales ratio.
What is the price-to-sales ratio?
It compares a company's market value with its annual revenue. Because revenue is far more stable than profit, it gives a usable reading in a year when earnings have collapsed and the price-to-earnings ratio has become meaningless.
What are the only three questions that count?
What do you believe that is actually false, what can you work out that others cannot, and what is your own brain doing to mislead you. His argument is that an edge can only come from one of the first two, and the third is what stops you keeping it.
Is Ken Fisher related to Philip Fisher?
Yes, Philip Fisher was his father. Their approaches differ considerably: Philip Fisher researched individual companies in depth, while Ken Fisher works top down from a view on the broad market.
What happened with Fisher Investments in 2019?
He made remarks at an industry conference in October 2019 that were widely reported as demeaning to women. A number of institutional clients, including public pension funds, withdrew billions of dollars. He apologised, and the firm later recovered and grew its assets.
Does the price-to-sales ratio still work?
Less well than it did. He has said so himself: once a measure is in every screening tool, the information it carried is already reflected in prices, and it stops identifying anything the market has overlooked.
What are the criticisms of Fisher Investments?
The main ones are that active management fees are hard to justify against low-cost index funds, that the firm advertises very heavily to attract individual clients, and that top-down market forecasting has weak evidence behind it.
Philosophies Ken Fisher is associated with
Schools of thought whose practitioner list names them. Association is not endorsement of the approach.
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