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Welcome to the hub of colonial America and a great city today, Philadelphia, Pennsylvania for the Money Show. I'm John Dobosz from Forbes. I'm sitting next to Ken Fisher and Ken has been a Ken was a columnist from '84 until 19 until 2017. Start Forbes started in 1917, of course. Longest running columnist and you've definitely seen him around TV, internet, radio, newspapers, magazines.
Ken, Good to see you, John. A great columnist. So, uh Ken was just talking in a previous segment about how to find out what's working and how to invest for the long term. Right now, we've got the market near an all-time high. Um there's always worry and that helps people in it bullishly, anyway. If you don't mind, tell me tell me about what you think of the current market, what sectors, what geographies are appealing to you, what styles?
So, to make what could be a long story very short, a little bit shorter, we're in a world today that's a not great world, but it's an okay world that in a sentiment sense people don't think is an okay world. And that for markets makes it pretty good. Perfect? No, but pretty good. And the reality of that simple statement that I made is one where people tend to want to focus on the negatives that everyone else focuses on, which is the worry part you were referencing.
And to not kind of get the notion that few people have any views that other people don't have. So, I'm basically bullish. This, however, has been a long, slow, grinding, the most joyless bull market in history with the lowest average annual returns. And spurts of positiveness followed by spurts of grinding sideways that get people back to being more dour.
And as that process continues, you get this long bull market. But normally in the late stages of bull markets, one kind of set of words describes the stocks to do best. In the late stages of bull markets, the last roughly third of the duration of a bull market, it's the big, global, high-quality, somewhat growthy names with fat gross operating profit margin sales less cost of goods sold being some number kind of 50% and up where the activities below the gross line can be spent on future growing the firm, marketing, sales, et cetera, et cetera.
So, you've got this confidence for late stage entrants that this is a safe growing company. In different cycles, different subsets of the market that have that lead. This time it's tech. Sometimes it's been health care. Uh it's also some other growthy parts of the market. Uh for example, in France, uh LVMH is just doing great in consumer luxury.
But Which is made in the world now? Pardon me? Bernard Arnault. Bernard Arnault, exceptionally successful phenomena and a brilliant man. But the fact of the matter is that when you look in these latter stages of uh bull markets, normally once categories start to break out, they keep remaining through the end of the bull market outperforming and still keep outperforming slightly into the beginning of the next bear market.
And so, I I'm the historically, that's true about 80% of the time. Once you get to this stage, you don't get real shifts in sustained leadership through the end other than about 20% of the time. So, my bet would be that the categories that have been leading like tech will continue to lead. Something like drugs, which has led in some other cycles and lagging this time probably continue lagging this time even though they have the same categories, growth, fat gross operating profit margins, global, household names, all that stuff.
They might lead in the next cycle, but this cycle they keep lagging. Tech keeps leading. Tech-like stocks are really important also because there's all these stocks that don't actually technically belong within the tech sector. You mean the Amazons and the and the Netflix. And what have you? But they Apple's consumer discretionary.
But they act like tech. Right. And because they have those same qualities, fat gross margins, growth, global names, all that same stuff makes it easy for the late stage bull market buyer to buy them. They're also easy to get out of when the time comes and that's another important part because some people get sucked into thin stocks, smaller, that they can't get out of when the bear market hits because everybody's trying to at the same time.
all at once there, right? And and the stocks are just you get into them, they do better and then you get out. It's it's hard for a lot of people to just do the big easy. But the big easy is the thing to do now. Do international markets excite you at all? Uh the the way that world works is tech is almost solely American.
There's almost no one on a market cap weighted basis tech outside of America. A few percent in Asia, a few percent in Europe. So, your tech has to be American. What that means is when you take the tech out of American and foreign returns, the rest of the returns in the last few years have been basically identical.
To a rounding error, the non-US US returns except for tech have been the same. So, you got to have your tech weight basically American and then when you think outside of that, you tend to then be shopping around heavily outside of America in the other categories that are doing just as well as the categories are in America.
Otherwise, you get too overweighted in America. I guess you to go overseas now, you'd have to be a bit of a a real value investor, right? No, no, no, that's not true. Let's just go back to the part point that we said a few moments ago. You could buy an LVMH in France and be in and be in consumer discretionary and that's not being a value investor at all.
It's saying in consumer discretionary, you might do better outside of America than you do inside of America. you. Okay. But as far as European stocks have lagged US stocks. But but only. I just want to be real clear on this, John. If you take out the tech stocks, that's not true. They're parallel. If you take out the tech stocks.
This is the part where people tend to look at countries and not dissect and parse out the sectors that make up the countries and the differences thereof. So, Same returns US and and and Europe with and without the tech. Over the last 3 years, within 2%. Wow, okay. Once you take out the tech. Right. So, people miss that, so they say US is great.
US is great, but it's no greater once you take out the tech. But US high-growing, large, stable companies, many of those in the technology industry group. And some others, but also you want to look for those others outside of America. Got you. China? China? China's a tougher China's a tougher world in a lot of ways and China's got a lot of issues and we could talk about China for a long time.
But You know as much as Ken. I'd focus more outside of China than I would inside of China. Tell me China China makes up a tiny percentage of global market cap. It does, but those companies, those tech-like companies, you've got the Baidus and the NetEases and all those Which aren't doing as well as ours.
They're slumping. Yep. Value investing. Ken Fisher, thanks a lot. Great, John. Thanks to be with you.
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