Kenneth Lawrence Fisher, aka Ken Fisher, is best known as the son of Philip A. Fisher, the legendary investor from whom Warren Buffett got many of his best ideas. He is now the founder and chairman of Fisher Investments, which caters to high net worth individuals. Fisher Investments manages close to $100 billion in assets and Ken Fisher’s personal net worth is somewhere in the neighborhood of $4 billion. Fisher is best known as a value investor and father of using the price-to-sales ratio (PSR) as a way of finding attractive investments.
In his book “Super Stocks,” he first discusses his use of the price-to-sales ratio (PSR) as well as the price-to-research ration (PRR). Simply put, a price-to-sales ratio is exactly as it sounds, it is the price of the stock multiplied by the number of shares (aka market capitalization) divided by the sales.
Here is an example of how to calculate the price-to-sales ratio (PSR) using Apple’s (AAPL) current market data:
( Price of Stock * Shares Outstanding ) / Last 12 Months of Sales = PSR Apple has 4.6 billion shares outstanding and a current price-per-share of $206.50. Multiply those together and you have a market capitalization = $949.90 billion Last twelve months of sales for Apple = $259.03 billion $949.90b / $259.03 = ~3.67 = PSR
Ken would say that a price-to-sales ratio of >1.0 is overvalued, <1.0 is undervalued and equal to 1.0 is fairly valued. Ideally though, you’d want to look for companies trading at a PSR of <0.75 to build in a significant margin of safety. That being said, in his book “The Only Three Questions That Count” Ken stated that the PSR is no longer useful because too many people know about it. This may or may not be true. Over time, as new methods are discovered and utilized and old methods get tossed to the side, old methods may work again.
In Apple’s case, its stock would be considered overvalued at a PSR of 3.67. But is this information useful? Well, it appears the PSR method would not have worked for trying to analyze Apple’s stock. Apple’s 5-year PSR average was 3.39, yet its return over 5 years was 103.81%. During this time the PSR hovered around this average and didn’t ever even break less than 2.5. In order for Apple to be considered “cheap” using this method the PSR would have had to go below 1.0. So, the PSR valuation method would have kept investors out of the stock and they would have missed out on an excellent return.
The price-to-research ratio works much the same way as the PSR except instead of sales being used, the amount of money spent on research and development (R&D) over the past 12 months is substituted in its place. It does not seem that Ken Fisher has discussed whether or not this still works. By his omission of this critical piece of information, it would seem as if PRR still does work, at least to some extent.
Ken Fisher continues to invest today and his approach seems to be based now on value investing principles mixed with common sense and data-driven approaches. His investment firm relies heavily on data and statistics to make their decisions but they do so in line with whether that data makes common sense. Ken Fisher is a very no-nonsense type of individual and his investment style tends to mirror his personality. These seems to be common with investors as many of the greatest investors seem to have investing styles that fit their personalities (or vice versa).
Ken continues to write regularly and his latest books are the following:
- “The Ten Roads to Riches“
- “Beat the Crowd“
- “Plant Your Prosperity“
- “Debunkery: Learn It, Do It, and Profit from It“
- “Little Book of Market Myths“
- “Markets Never Forget (But People Do)“
- “How to Smell A Rat“
- “100 Minds that Made the Market“
He also writes for Forbes magazine (as well as several other notable publications) and is one of the longest contributors in the magazine’s history. Ken is an advocate for redwood forest preservation and an active philanthropist (although he says he is “not a fan of philanthropy”). Interestingly enough, he had decided to donate a large portion of his wealth to John Hopkins, a decision he came up with long before Bill Gates and Warren Buffett were making their own pledges.
As far as his personal life is concerned, he dropped out of high school but then went on to get a degree in economics at Humbolt State University (originally he was studying forestry). Ken currently lives in Camas, Washington with his wife and three children. He enjoys bowfishing and learning about the history of lumbering.