Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher discusses why many investors—himself included—failed to accurately foresee inflation rates this year. Ken says this is partly due to historical approaches of measuring money supply being less accurate in today’s world, as there are now a myriad of “near money” alternatives that can be difficult to account for. He also points to how the dramatic increase in money supply from central banks to help with COVID-19 economic stress didn’t create immediate inflation problems—surprising investors.

Ken thinks inflation was slower to appear because the increase in money supply quickly dissipated into “near money” initially, such as US Treasuries. However, Ken says “near money” has reconverted into money and crept into the system, which contributed to this year’s high inflation. Looking forward, Ken believes there are many signs inflation should grind lower—including slower money supply growth, falling commodity prices, and easing supply chain pressures—but it’s difficult to predict when. Ken says inflation will be slowly digested—akin to a snake eating a large rodent—and ultimately prove to be transitory despite lasting longer than most expected.

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Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice. Nothing herein is intended to be a recommendation. The opinions expressed are subject to change without notice….(read more)

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Ken Fisher Examines What Investors Got Wrong About Inflation

Inflation has long been a topic of concern for investors, impacting everything from interest rates to stock market returns. However, renowned investor Ken Fisher believes that many investors have gotten it wrong when it comes to understanding and reacting to inflation.

According to Fisher, there are three key misconceptions that investors often have about inflation. The first misconception is that inflation is always bad for stocks. While it is true that inflation erodes the purchasing power of cash and can lead to higher interest rates, Fisher argues that inflation can also be a sign of a strong economy. In such cases, companies can raise prices and generate higher profits, which can actually benefit stock prices.

Fisher’s second point is that investors often overreact to inflation news. He notes that markets tend to anticipate inflation and often price it in ahead of time. As a result, by the time inflation data is released, the market has usually already adjusted. Fisher advises investors not to make knee-jerk reactions to inflation announcements but instead consider the broader economic context.

The third misconception Fisher highlights is the belief that inflation is always driven by excessive money printing. While this can be a contributing factor, Fisher argues that inflation can also result from supply chain issues, changes in consumer behavior, or shifts in global trade dynamics. By attributing inflation solely to monetary policy, investors may miss out on other opportunities or fail to adequately respond to changing market conditions.

To navigate the complexities of inflation, Fisher suggests that investors focus on fundamental analysis and maintain a diversified portfolio. By understanding the underlying factors driving inflation and the potential impact on different sectors and assets, investors can make informed decisions. Additionally, Fisher emphasizes the importance of considering the long-term implications of inflation rather than attempting to time short-term market movements.

Fisher’s insights challenge the commonly held assumptions around inflation and highlight the need for a nuanced perspective. Inflation is a multifaceted phenomenon that can have varying effects on different asset classes and sectors. By examining the broader economic context and understanding the factors driving inflation, investors can position themselves to make well-informed investment decisions.

In conclusion, Ken Fisher reveals the misconceptions that investors often have about inflation. Contrary to popular belief, inflation can have positive effects on certain assets and may not always be solely driven by monetary policy. By taking a holistic approach and considering the larger economic factors at play, investors can navigate the complexities of inflation and position themselves for long-term success.