Phil Fisher’s 15 points
In his classic investing book “Common Stocks and Uncommon Profits” (Wiley, $25), Philip A. Fisher laid out “Fifteen Points to Look for in a Common Stock.” Decades later, these questions can still help us identify promising investments. Here are some of them.
• “Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?” There’s little point investing in a company that’s not growing.
• “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?” Look for companies investing in research and development, with demonstrated innovation skills.
• “Does the company have a worthwhile profit margin?” and “What is the company doing to maintain or improve profit margins?” Ideally, you want a profit margin greater than those of competitors, and margins that are increasing.
• “Does the company have outstanding labor and personnel relations?” Satisfied employees tend to stick around and be productive; disgruntled ones, less so.
• “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 will be in relation to its competition?” Great businesses tend to have sustainable competitive advantages, such as Disney’s strong brand or Apple’s networking platform, which keeps users more and more tied to its ecosystem with each new product.
• “Does the management talk freely to investors about its affairs when things are going well but ‘clam up’ when troubles or disappointments occur?” It can be hard to get a good handle on management, but reading several years’ worth of a CEO’s annual letters to shareholders can help you see if they’re frankly discussing challenges, owning up to mistakes and clearly laying out strategy. Concealing problems or blaming others is a red flag.
Reading Fisher’s book can make you a much smarter investor.