This is the second post summarizing Philip Fisher’s investment strategy see Investing Styles for Beginning Investors. Old Phil Fisher’s investing strategy was pretty straight forward. He wrote an influential book called Common Stocks and Uncommon Profits. In that book he outlined how he evaluated a company.  Fisher asked fifteen key questions ( he called them points). You could not buy the company’s stock if you were unhappy with the results of your information quest.

The questions were:

1. Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?
2. 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?
3. How effective are the company’s research and development efforts in relation to its size?
4. Does the company have an above average sales organization?
5. Does the company have a worthwhile profit margin?
6. What is the company doing to maintain or improve profit margins?
7. Does the company have outstanding labor and personnel relations?
8. Does the company have outstanding executive relations?
9. Does the company have depth to its management?
10. How good are the company’s cost analysis and accounting controls?
11. Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?
12. Does the company have a short-range or a long-range outlook in regard to profits?
13. In the foreseeable future, will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders’ benefit from this anticipated growth?
14. Does the management talk freely to investors about its affairs when things are going well, but ‘clam up’ when troubles and disappointments occur?
15. Does the company have a management of unquestionable integrity?

While these are all terrific questions, it is a little unrealistic to expect a part time or beginning investor to suss out the facts for all these points. I still think the scuttlebutt idea is one of the best and still most relevant of Fisher’s ideas and is incapsulated in his saying “The business ‘grapevine’ is a remarkable thing. It is amazing what an accurate picture of the relative points of strength and weakness of each company in an industry can be obtained from a representative cross-section of the opinions of those who in one way or another are concerned with any particular company.”

According to Fisher once you bought a company, if you did your job right, you almost never had to sell or as he said, “If the job has been correctly done when a common stock is purchased, the time to sell it is – almost never.”  The criteria for selling was a short list:

1. Sell the stock if you have made a big mistake in your assessment of the company
2. Sell the stock if the company no longer passes the 15 points as clearly as it once did
3. Sell if a better opportunity for investing presents itself. If you could reinvest your money in another, far more attractive company.  Make sure you are right before you do this.

You can learn a lot from Philip Fisher, but for those of us who still have full time jobs, you will need to narrow down the focus of your research and determine what delivers the most  bang for the buck, in research time spent.

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