Dr. Stephen Fisher – First Degree Global Asset Managment

Dr. Stephen Fisher has twenty five years’ experience as an investment professional with leading investment management groups in the United States, Asia and Australia. Immediately prior to co-founding First Degree in 2011, Stephen was the Head of Global Fixed Income Product – Asia Pacific at JPMorgan Asset Management, and had investment responsibility for the firm’s mandates from Central Banks, Sovereign Wealth Funds and some of the largest Institutions in the Asia Pacific Region.

What was the first stock you ever bought?
My father had been to an investing seminar in 1971 and had purchased a few shares (Woodside Petroleum, Stanley Tools and something else) and he gave me the task of looking up the sharetables in the newspaper every morning. He was teaching me how to read, I suppose, but the columns and columns of numbers completely captivated me. How were these prices determined? What do they mean? People make and lose money because these columns of numbers go up and down. My entire life has been spent trying to understand these numbers, where they come from, where they are going to, how to make optimal use of them etc etc. I still don’t understand much of it actually, the sharetables are now on Bloomberg, but what they mean is still a mystery…

…so I decided to try the stock market game myself in 1971. I purchased 100 shares of stock in Travelodge Ltd (a motel chain) at 42c per share. They went down to 35c for a few months but then Tan Sri Khoo from Malaysia purchased the company for 70c. Greenmail!

What is your firm’s investment philosophy?
The usual labels (growth, value, garp, blah blah, blah) dont reflect the way I think about investments. I start by assuming that everything is efficiently priced which means I am indifferent between the particular security or the market. Market risk premia for the asset classes are important (Equity premia, bond premia, property premia etc) and some combination of this is where I want to be. Individual securities contain these risk premia in some proportion but they also have their own story and the CEOs of these companies spruik their business’s special characteristics. I like to think whether the probability distributions for these characteristics have been correctly identified by the market or, if not, what that distribution should be.

How are you managing the current COVID-19 situation on the personal front and on the business front?
Covid19 is just another panic and we have lived through them before and will encounter more in the future.

The interesting aspect is that the market got the probability distributions for Covid19 very wrong initially, thereby precipitating a deep decline in the global stock markets. I say this because the two key inputs in the production process, Labour and Capital, are virtually unaffected. The death rate is not that high so the reduction in labour supply is almost zero. The capital stock does not get sick so this remains intact. On this basis the economic impact should be minimal.The government response has been dramatic but, let’s face it, 4 to 8 weeks working from home is hardly a penalty – GDP may fall 5% or something in Q2 but it will be earned back in Q3 or Q4.

The probabilities being applied to economic decline were completely astray initially. The market was pricing a 20% death rate or something outrageous. The market finally worked out the distributions a few weeks ago and the market is up 30% since that epiphany.

On the personal side, I remember the Westerns where John Wayne would be escorting new settlers through Apache territory and when suddenly faced with an attack by the natives, the Duke would command the wagon train to ‘form a circle’. This was apparently an effective defensive tactic. I don’t want to catch the virus so I have followed the Duke’s advice and formed a circle with the family wagon train.

What are the top 3 qualities any good investor should have?
Good investors need to strike at an opportunity when it presents itself. Markets are pretty efficient so you cannot just expect to go and buy something cheap tomorrow nor can you read balance sheets or other public information and expect to find a winner. The world is stochastic and every now and then something presents itself that just makes you sit up and think, ‘…why is this not right?’ The trick is then actually backing your insight. Having the ability to see an aberrant price and also hitting that price is what makes investors stand out.

What is your favourite book?
My favourite book is Foundations of Finance by Eugene Fama. It is riotously funny how Fama can show you a distribution of return that is far from being Normally distributed and then he goes on to claim that its “…close enough to Normal…” for him to force his conclusions on the rest of us. Its arguably the Bible of empirical finance and like any religious text it is full of fictions.

Which industries in Australia have caught your interest?
I am intrigued by the micro-cap market in Australia. I term it the “…listed Venture Capital…” market. Basically, the microcaps have decided to shun the traditional private capital VC approach and have raised money for their startup in the public space. These companies don’t seem to perform very well from the share price perspective but their promoters swear by going public early rather than later. One can shop around this market for software technology, fintech, biotech, manufacturing, mining explorers to name a few. It’s like a bazaar and the best part is that the companies all play by the same rules that big public companies adhere to. That makes me feel much safer than chancing my luck in the shark tank that is Silicon Valley!

How can people connect with you?
Email:
First Degree Website: http://www.firstdegree.asia/