Phillip Fisher - 15 Point Checklist
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In today’s review week look at the book Common Stocks and Uncommon Profits, by Phillip Fisher.
Fisher is widely labelled as the father of growth investing, and his work comes highly recommended by the likes of Warren Buffet.
Inventor of the word ‘Scuttlebutt’ Fisher describes how investors scramble everywhere, looking for pieces of information to establish the prospects of a company.
Fishers philosophy however centred around finding strong management teams, and excellent growth potential.
Fortunately the work of Fisher lives on, and thanks to his writings he discloses a 15-point checklist to discover common stocks and uncommon profits.
Let’s take a look at the key thoughts from one of the world’s best investors.
When I first read the book, it soon became clear to me that Fishers investing approach was rather subjective, relying on qualitative questions as opposed to using specific values or financial ratios often referred to by other investors.
Contrary to the beliefs of other investors like Benjamin Graham who was a pure value hunter, Fisher was not concerned about paying for a stock which was ‘perceived’ to be expensive.
Value investors like Graham look to determine the intrinsic value of a stock, whilst evaluating quantitative criteria to find undervalued opportunities, thereby buying stocks which offer a margin of safety.
Growth investors like Fisher, however, are happy to buy stocks which are considered overvalued, on the premise that the growth potential would more than justify the ‘expensive’ purchase price.
Considered as a long-term investor, Fisher said;-
“If the job has been correctly done when stock is purchased, the time to sell it is almost never.”
Although Fisher does suggest that any purchase which later fails his 15 questions (which we discuss shortly), consideration should be given to replacing the stock with a more attractive proposition.
A great example of Fisher not selling a stock was his purchase of Motorola in 1955. The evolution of its products driven by the research and development efforts, led to Fishers purchase to increase 20-fold.
Fisher accepted that his qualitative approach was not easy, and said:-
“Great stocks are extremely hard to find. If they weren’t, then everyone would own them.”
Let’s take a look at the 15-point checklist Fisher refers to in order to find these great growth stocks.
You will see that the checklist is not about analysing numbers, its about getting to the heart of the business, understanding what makes the business tick and ultimately what makes the company grow.
The convenience of finding the answers was often limited to attending Annual General Meetings. As such, Fisher did not look for diversification, he spent the time to search for the few stocks which passed his checklist criteria and made
The 15-point checklist is not exhaustive but many of the questions do not have a simple answer, leaving them open to a certain degree of interpretation.
Number one on the checklist relates to products and services.
Does the company have the products or services, with sufficient market potential, to make possible a sizable increase in sales for at least several years?
The company Heely’s was a prime example of not having sufficient market potential, the wheel in the shoe fad soon faded, along with its share price.
Number two on the checklist.
Does the management have a determination to continue to develop products or processes, that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?
The company Apple is a great example of determinat