The Timeless Investment Wisdom of Philip Fisher

In the world of finance, few names shine as brightly as Philip Fisher's. His insights and methods have left a permanent mark on the investing landscape. To this day, several of the greatest investing minds, including Warren Buffett, admit to being influenced by Fisher's strategies and thinking. Let's explore how Philip Fisher became one of the world’s most famous investors, his investment strategy, the “scuttlebutt” approach, and his highly praised writings.

• Philip Fisher is one of the most influential investors in history, with a unique investment strategy that prioritized qualitative insights. Notable figures, including Warren Buffett, acknowledge Fisher's influence on their investment approach.

• Fisher emphasized a "buy and hold" strategy of high-quality companies after thorough due diligence.

• Fisher's scuttlebutt method emphasizes gathering holistic insights about a company, which aids in validating facts, uncovering unique opportunities, and mitigating potential risks.

• Philip Fisher authored several books, with "Common Stocks and Uncommon Profits" being his most renowned. These books offer deep insights into his investment philosophy, emphasizing the importance of understanding businesses in-depth, recognizing broader industry trends, and prioritizing quality in investments.

Philip Arthur Fisher was born on September 8, 1907, in San Francisco, California. He always maintained a relatively low profile despite his immense success. In 1931, at the height of the Great Depression, he founded the investment firm Fisher & Company. This venture allowed him to refine and implement his unique investment philosophy, which would later shape the investment strategies of numerous successful investors.

He was married to Dorothy, and the couple had three children. Their son, Kenneth L. Fisher is also a well-known investment analyst and the founder of Fisher Investments, a prominent money management firm. Fisher lived a long and fulfilling life, passing away at the age of 96 in 2004.

A deep dive into Philip Fisher's investment strategy reveals a steadfast focus on quality over quantity. Unlike many of his peers who would diversify their portfolios extensively, Fisher believed in investing in a few excellent companies and holding onto them for an extended period. In essence, his strategy can be summarized as "buy and hold," with a strong emphasis on due diligence, qualitative insights, and a concentrated portfolio.

His due diligence went far beyond just financial statements. Fisher emphasized the importance of scuttlebutt or gathering information from various sources like competitors, suppliers, and customers regarding the companies he intended to invest in. He believed that a holistic understanding of a company's business model, its competition, and the industry it operates in is crucial for predicting its long-term success.

Fisher wasn't merely in search of companies offering short-term gains. Instead, he pursued businesses with strong management teams, innovative products and services, and the potential for future growth. His methodology emphasized the significance of intangible assets, such as a company’s innovative capacity and the robustness of its organizational structure. Fisher even asserted that above-average research and development-spending in an industry is a positive indicator, suggesting that management is long-term oriented. The scuttlebutt approach has influenced some of the greatest investing minds, including Warren Buffett, who once described himself as being 85% Benjamin Graham and 15% Philip Fisher.

At its core, the term scuttlebutt refers to informal talk or gossip. In the realm of investing, Fisher used the term to describe his method of gathering information on a prospective company from a diverse array of sources, well beyond what was available in annual reports and financial statements. He believed that to truly understand a company and its future prospects, an investor must dig deeper, collecting and synthesizing qualitative data from various stakeholders. To implement the scuttlebutt method, Fisher would:

• Speak to competitors: By understanding what competitors thought of a company, Fisher could gauge the firm's position in the market and its competitive strengths and weaknesses. In fact, Fisher’s favorite question to executives was: "What are you doing that your competitors are not doing yet?"

• Engage with customers: Fisher believed that customers could provide insights into a company's product quality, after-sales service, reputation, and potential for future growth.

• Discuss with suppliers: Suppliers could offer perspectives on a company's business practices, reliability, and competitive position.

• Consult former employees: Ex-employees often have a unique viewpoint, providing unbiased insights about a company's internal workings, culture, and management quality.

• Reach out to research professionals: Research analysts and industry experts can offer a broader view of the industry's future and where the company fits within that vision.

• Validation of facts: While annual reports and official documents provide a wealth of data, they might be biased or present a rosier picture than reality. By tapping into the grapevine, Fisher could validate or challenge the officially presented facts.

• Find hidden gems: There are often valuable insights not captured in official reports. For instance, a company's research and development might be on the verge of a significant breakthrough, or it may have an exceptionally talented management team poised to drive the company forward.

• Risk mitigation: By understanding potential problems or challenges that a company might face, Fisher could make more informed decisions and potentially avoid investments that carried undue risks.

While the digital age has transformed the way we access and process information, the core principle of scuttlebutt remains relevant. Today's investors can tap into online forums, customer reviews, social media sentiments, and more to gauge a company's reputation and prospects. In a world overflowing with information, the ability to discern quality insights from noise arguably becomes even more crucial.

Fisher's scuttlebutt method emphasizes the importance of comprehensive due diligence, and serves as a vital reminder that understanding a company requires more than just crunching numbers. The scuttlebutt method, with its in-depth, multi-faceted research, ensures investors have a holistic view, allowing them to make more informed and potentially more profitable decisions.

• Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?

This is about assessing the growth potential of the company's products or services. Industries that are young or undergoing rapid change often offer more opportunities for this kind of growth.

• Is management determined to develop products/processes that will further increase total sales when the potential of current products is fully exploited?

This relates to the longevity and sustainability of the company's growth. Companies need to innovate and adapt, especially in rapidly changing markets.

• How effective are the company’s research and development efforts in relation to its size?

R&D is a critical factor in many industries, especially tech, pharma, and biotech. Effective R&D can lead to competitive advantages. As aforementioned, Fisher considered above-average R&D spending by companies to be a positive sign.

• Does the company have an above-average sales organization?

Sales drive revenue. An efficient and effective sales team can significantly impact a company's success.

• Does the company have a worthwhile profit margin?

High profit margins can indicate a competitive advantage or a premium product/service. It also provides a cushion during economic downturns.

• What is the company doing to maintain or improve profit margins?

This assesses the company's strategies against competition, inflation, and other challenges that can erode margins.

• Does the company have outstanding labor and personnel relations?

Happy employees often lead to higher productivity. Companies with good labor relations might face fewer disruptions, strikes, or turnover.

• Does the company have outstanding executive relations?

Strong leadership and a cohesive executive team are crucial for strategic execution.

• Does the company have depth to its management?

This relates to succession planning. Companies with depth can better handle unexpected transitions or challenges.

• How good are the company’s cost analysis and accounting controls?

Strong internal controls reduce the risk of fraud or financial mismanagement.

• 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?

Each industry has unique nuances. For instance, in real estate, location is paramount; in tech, network effects might be crucial.

• Does the company have a short-range or long-range outlook in regard to profits?

Companies too focused on short-term profits might sacrifice long-term growth or stability.

• 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?

Issuing more shares dilutes existing shareholders' value. It's essential to know if growth strategies might lead to this.

• Does management talk freely to investors about its affairs when things are going well but “clam up” when troubles and disappointments occur?

Transparency and consistency in communication can indicate management's honesty and integrity.

• Does the company have a management of unquestionable integrity?

Ethical management reduces risks related to scandals, legal issues, or reputational damage.

A significant medium through which Fisher relayed his ideas to the world was his books. Let's explore his most notable works and the profound insights they offer.

"Common Stocks and Uncommon Profits," published in 1958, was Fisher's first book and is perhaps also his most renowned work. Famous investors, including the likes of Warren Buffett, frequently cite it as a must-read for anyone venturing into the world of investing. In this book, Fisher introduces the 'Fifteen Points to Look for in a Common Stock' and delves deeper into the scuttlebutt approach, which we discussed earlier.

In "Paths to Wealth through Common Stocks," published in 1960, Fisher takes a deeper dive into the themes from his first book. He examines the concept of diversification versus concentration in one's portfolio, leaning towards the idea that it's often more beneficial to deeply understand and focus on a few excellent stocks than to diversify too much. Fisher also sheds light on the necessity of understanding broader industry trends and how these macro-trends can shape the fortunes of individual companies. He illustrates his arguments using concrete examples from industries like automotive, airline, and television. Additionally, he doesn't shy away from discussing potential pitfalls in stock investing, pointing to risks like overpaying for growth or the dangers of insufficient business understanding.

"Conservative Investors Sleep Well" is another masterpiece where Fisher explores the nuances of conservative investing. Here, being "conservative" doesn't imply avoiding risks but understanding and appropriately managing them. Fisher draws a line between the price of a stock and its intrinsic value, suggesting that even a high-priced stock might be valuable if its growth prospects and underlying fundamentals are robust. A recurring theme is the emphasis on quality, where Fisher underscores the significance of investing in businesses that are not just performing well but also have a robust competitive position, stellar management, and undeniable growth prospects.

In essence, Fisher's books are not mere investment guides. They offer a treasure trove of wisdom on evaluating businesses and making sensible decisions. While the industries and examples Fisher cites may have evolved over time, the core tenets of his investment philosophy remain eternally relevant.

Philip Fisher's investment philosophy stands out for its endurance and its heavy emphasis on qualitative insights. Even in our modern, data-driven age, his focus on deep qualitative analysis and the scuttlebutt approach remains as relevant as ever. Moreover, his writings underscore that true investment wisdom goes beyond chasing immediate gains and emphasizes understanding a business's intrinsic value and growth potential. As markets evolve and new investment trends emerge, Fisher's foundational principles of research and conviction continue to guide investors worldwide.