It's with sadness that we note that investing legend Philip A. Fisher died this past month at the age of 96. We had not seen it reported anywhere until his son, Kenneth, eulogized his father in his regular column in Forbes.
Fisher was an investment manager of the type that would never have been able to flourish in the brokerage industry's activity-driven model. He believed in long-term investing, in buying great companies at good prices, and then thumbing his nose at the taxman as he held, and held, and held. He gave very few interviews, was extremely choosy about his clients, and would not have been well known to the public but for his writings, most notably Common Stocks and Uncommon Profits and Conservative Investors Sleep Well.
His most famous investment was his purchase of Motorola
Fisher's stock-in-trade was the discipline to thoroughly understand a business before and after he bought it. His form of long-term investing was not the bastardized version that became vogue in the 1990s. Fisher was no passive investor who used the long-term buy-and-hold mantle to avoid paying attention to his investments. He was always willing to sell if he noted a negative change in the company's prospects, and, through painstaking attention to detail, he was generally well ahead of the crowd in ferreting out potential problems.
I own two copies of Common Stocks and Uncommon Profits. The first is dog-eared and highlighted, the second was a gift from an extremely generous longtime friend of The Motley Fool. It is signed by Mr. Fisher, and it is a prized possession.
Herewith are Fisher's "15 Points to Look for in a Common Stock," followed by "Five Don'ts for Investors." In these questions, without even seeing the supporting text, you'll see traits in many great companies, such as Pfizer
I can't think of a better tribute except to urge you to read Fisher's "15 Points" and "Five Don'ts" and their supporting documentation, in the original. You're guaranteed to learn something great every time you read his gift to investors.
15 Points to Look for in a Common Stock
- Does the company have products or services with sufficient market potential to make possible a sizeable increase in sales for at least several years?
- 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?
- How effective are the company's research and development efforts in relation to its size?
- Does the company have an above-average sales organization?
- Does the company have a worthwhile profit margin?
- What is the company doing to maintain or improve profit margins?
- Does the company have outstanding labor and personnel relations?
- Does the company have outstanding executive relations?
- Does the company have depth to its management?
- How good are the company's cost analysis and accounting controls?
- 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?
- Does the company have a short-range or long-range outlook in regard to profits?
- 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?
- Does the management talk freely to investors about its affairs when things are going well but "clam up" when troubles or disappointments occur?
- Does the company have a management of unquestionable integrity?
Five Don'ts for Investors
- Don't buy into promotional companies.
- Don't ignore a good stock just because it is traded "over-the-counter."
- Don't buy a stock just because you like the "tone" of its annual report.
- Don't assume that the high price at which a stock may be selling in relation to its earnings is necessarily an indication that further growth in those earnings has largely been already discounted in the price.
- Don't quibble over eighths and quarters.
Rest well, Phil Fisher.
Bill Mann owns shares in Procter & Gamble and Costco. Please refer to his profile for a complete list of holdings. Tom Gardner recently listed Common Stocks, Uncommon Profits as a must-read for investors in his newsletter, Motley Fool Hidden Gems. Consider afree trial.