Philip Fisher was an American investor born in 1907. He is one of the most influential investors. His book ‘Common stock for Uncommon Profits’ published in 1958 is a guide to successful investing. He has described the growth opportunities which most of the investors overlook. The book has explained what to buy, when to buy. In addition to this it said 15 principals of successful investing. Further it says 10 don’ts of an investor, and 5 powerful forces and about growth stocks. He described ‘what to buy’ for high-quality stocks, where he called these stocks as ‘Scuttlebutt’. Now what does scuttlebutt include and what does it mean actually?
Furthermore, Scuttlebutt includes all the financial activities such as study of its promoters, suppliers, customers, stakeholders, employees, competitors etc. These are to know the how-about of a company. What is the main reason for everyone to enter stock markets? Fisher says generally there are two reasons to it. One is to time the market. The other one is to find the companies which are doing good and holding it. And he prefers the second one. Moreover, the book has described the famous ‘15 points to look for a common stock’ known worldwide. He has advised the investors to look upon the 15 points before purchasing stocks.
Some of the guidelines in those 15 points include investing in companies in which:
- The company should show strong market potential for long term sales growth.
- The company’s management should be capable enough to develop innovation.
- The profit margin of the company should be worth investing in.
- The company should show its strengths to its industry.
- Company’s cost analysis and accounting controls should be efficient.
Fisher says that you should identify stocks which have the greatest profit when compared to risk. He further explains when to buy? According to him, an investor should know about the timing of buying stocks, even if the company is doing great. So for selling he said that if an investor finds a better investment. Or if the management is deteriorating one should sell it. All the investors need to forecast the market and then take up the investment decision.
Philip Fisher says that an investor should be aware of the “five powerful forces” affecting the stock market
1) The fluctuations in a business cycle
2) Interest rate trends.
3) What is government’s stance over business and investment?
5) Changes in existing industries and products.
Further, Philip talks about the dividends. Investors should be aware of the rate of dividends and also about its regularity. Companies reducing the rate of dividend without any reason should be avoided immediately. Investors should prefer steady dividend, which are paid out regularly. One should also measure how much of the company’s net income is paid out as dividends.
Philip has given 10 DONT’S to be a good investor, from which some of them are:
- One should now only buy because of company’s good annual report.
- Over diversified portfolio, can end up causing trouble.
- Don’t follow the crowd.
- One should not only consider price.
- Don’t buy into new, unproven venture.
Fisher gives the investors an amazing concept which he calls,
“Conservative investors sleep well”
Smart investors seek to “conserve purchasing power at a minimum of risk.”
A conservative investor should consider four aspects while analyzing the company
1) Company’s “low-cost production,” including efficiency in sales process, excellent technology and research capabilities
2) Its recognition of employees
3) “Certain inherent characteristics” that keep a firm at the top
4) Asober “appraisal” of its PE ratio.
Further Fisher explains about how do you find a growth stock?
Shortlist the most capable and potential companies to invest in. this can be done by speaking to experienced investors. After this investors should take a look at the financial statements, and analyze the sales and income statements. As mentioned earlier, one should follow the scuttlebutt method and ensure to contact as many people as one can. The final step goes with contacting the management and visiting the company. This book provides a different view on investments which can be useful to value investors. According to Fisher, success in common stock investing depends on hard work, intelligence and honesty. Investors in common stocks should focus on long-term returns and not try to buy low and sell high.