Philip Fisher: The man who inspired millions of growth investors
Philip A Fisher was an American investor and author who propagated growth investing, buying company Stocks showing extraordinary growth potential, and wrote the bestseller Common Stocks and Uncommon Profits. Unlike Benjamin Graham, known as the Father of Value investing, Fisher is known as the Father of Growth investing. While Benjamin graham focuses more on the quantitative factors, Fisher focuses on the qualitative factors like company’s long term growth prospect, quality of management, commitment to research and development, etc.
Today, most analysts combine both quantitative and qualitative models of stock analysis.
Who was Philip Fisher?
Born in 1907, Fisher began his career as a securities analyst in 1928 and three years later founded his investment counselling firm, Fisher & Co. Though he managed money for others via his company, his rise to fame was the publication of the seminal book Common Stocks and Uncommon Profits in 1958. Fisher is known as the greatest investor due to his unconventional but successful investing style.
He was also a proponent of holding his stocks forever. One of his famous investments is Texas Instruments, which he bought early at $14 per share. Fisher also purchased Motorola in 1955, when it was making radio, and held it until his death in 2004.
Operating nearly half a century before anyone even heard of the internet, Fisher perfected an investment philosophy that sounds more apt in the age of technology companies. Instead of focusing on business cycles, he preferred to identify and buy shares of companies that were well-positioned for long-term growth in sales and profits. If he believed in a company, he would hold it forever.
Fisher disagreed with buying great stocks when they are available below their intrinsic value, which is the basic tenet of value investing. In his book, he argues that growth stocks do much better because they show gains in value in the hundreds of per cent each decade. In comparison, he adds that a value pick available at a 50% discount to intrinsic value will rise only that much.
It does not mean he favoured only small companies but those with characteristics such as long-term growth potential in sales of products or services, ability to maintain a favourable competitive edge for the long term, and excellent management.
What to buy and when to buy
In his book, Fisher described a 15-point system that he used to analyse a prospective investment, and if the company fulfilled most of those requirements, he would only buy the stock. Following are the 15 points suggested by Fisher to check in any company before making investment in it.
- Product and services offered by a company
- Focus on to develop product and services
- Commitment towards research and development
- Strong sales force
- Higher profit margin
- Focus on growth of the margin
- Focus on cost control
- Focus on employees
- Ability to nurture employees to create leadership
- Higher debt borrowing capacity
- Sustainable long-term profits
- Integrity of management
- Quality of management
- Company’s winning strategy or path
- Management’s relation with their staff and quality of teamwork
Fisher believes in the scuttlebutt approach, which focuses on gathering information about a company via its employees, customers, competitors, suppliers, management etc. Fisher prefers a concentrated portfolio with a few stocks and believes in a buy-and-hold strategy.
Given a flurry of new-age tech stocks landing on the Indian Stock Market, the importance of stock analysis proposed by Philip Fisher has become more important for Indian investors. Though not easy to implement as Fisher’s methods require extensive reading and research, his ideas and theories have been adopted by several successful investors over 70 years, including Warren Buffett, arguably the most successful value investor globally.
This is a testament that Fisher’s methods work for growth investors and are employed by value investors.
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