0471445509
Philip A. Fisher and Kenneth L. Fisher
Notes
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…Go to five companies in an industry, ask each of them intelligent questions about the points of strength and weakness of the other four, and nine times out of ten a surprisingly detailed and accurate picture of all five will emerge…It is equally astonishing how much can be learned from both vendors and customers about the real nature of the people with whom they deal. Research scientists in universities, in government, and in competitive companies are another fertile source of worthwhile data. So are executives of trade associations…This group consists of former employees. Such people frequently have a real inside view in regard to their former employer’s strengths and weaknesses…reading the printed financial records about a company is never enough to justify an investment. One of the major steps in prudent investment must be to find out about a company’s affairs from those who have some direct familiarity with them.
…the greatest long-range investment profits are never obtained by investing in marginal companies. (Track revenues and/or revenue per share and track trend of profit margin as well as expense ratio)…The company that can show an average annual increase of 12 per cent for a long period of years should be a source of considerable financial satisfaction to its owners…If the job has been correctly done when a common stock is purchased, the time to sell it is—almost never.
…what really matters is whether the company’s cash plus further borrowing ability is sufficient to take care of the capital needed to exploit the prospects of the next several years.
…if there is a serious question of the lack of a strong management sense of trusteeship for stockholders, the investor should never seriously consider participating in such an enterprise…the company into which the investor should be buying is the company which is doing things under the guidance of exceptionally able management. A few of these things are bound to fail. Others will from time to time produce unexpected troubles before they succeed. The investor should be thoroughly sure in his own mind that these troubles are temporary rather than permanent. Then if these troubles have produced a significant decline in the price of the affected stock and give promise of being solved in a matter of months rather than years, he will probably be on pretty safe ground in considering that this is a time when the stock may be bought.
More money has probably been lost by investors holding a stock they really did not want until they could “at least come out even” than from any other single reason…The occasional investor who does find more such unusual companies than he really needs seldom has the time to keep in close enough touch with all additional corporations…Usually a very long list of securities is not a sign of the brilliant investor, but of one who is unsure of himself…he should take extreme care to own not the most, but the best.
I will, however, glance over the balance sheet to determine the general nature of the capitalization and financial position. If there is an SEC prospectus I will read with care those parts covering breakdown of total sales by product lines, competition, degree of officer or other major ownership of common stock (this can also usually be obtained from the proxy statement), and all earning statement figures throwing light on depreciation (and depletion, if any), profit margins, extent of research activity, and abnormal or non-recurring costs in prior years’ operations.
…he should never visit the management of any company he is considering for investment until he has first gathered together at least 50 per cent of all the knowledge he would need to make the investment. If he contacts the management without having done this first, he is in the highly dangerous position of knowing so little of what he should seek that his chance of coming up with the right answer is largely a matter of luck…One of my favorite questions in talking to any top business executive for the first time is what he considers to be the most important long-range problem facing his company.
The company that qualifies well in this first dimension of a conservative investment is a very low-cost producer or operator in its field, has outstanding marketing and financial ability and a demonstrated above-average skill on the complex managerial problem of attaining worthwhile results from its research or technological organization.
- a company capable of developing a flow of new and profitable products or product lines that will more than balance older lines that may become obsolete by the technological innovations of others
- a company able now and in the future to make these lines at costs sufficiently low so as to generate a profit stream that will grow at least as fast as sales and that even in the worst years of general business will not diminish to a point that threatens the safety of an investment in the business
- a company able to sell its newer products and those which it may develop in the future at least as profitably as those with which it is involved today.
If the salary of the number-one man is very much larger than that of the next two or three, a warning flag is flying.
In general, more attractive opportunities will be found among stocks with a low dividend payout or none at all.