Philip Arthur Fisher
|Born||September 8, 1907|
|Died||March 11, 2004(aged 96)|
Common Stocks and
Uncommon Profits (1958)
Philip Arthur Fisher (September 8, 1907 – March 11, 2004) was an American stock investor best known as the author of Common Stocks and Uncommon Profits, a guide to investing that has remained in print ever since it was first published in 1958.
Philip Fisher's career began in 1928 when he dropped out of the newly created Stanford Graduate School of Business (later he would return to be one of only three people ever to teach the investment course) to work as a securities analyst with the Anglo-London Bank in San Francisco. He switched to a stock exchange firm for a short time before starting his own money management company, Fisher & Co., founded in 1931. He managed the company's affairs until his retirement in 1999 at the age of 91, and is reported to have made his clients extraordinary investment gains.
Although he began some fifty years before the name Silicon Valley became known, he specialized in innovative companies driven by research and development. He practiced long-term investing, and strove to buy great companies at reasonable prices. He was a very private person, giving few interviews, and was very selective about the clients he took on. He was not well-known to the public until he published his first book in 1958. At this point Fisher's popularity rose dramatically and propelled him to his now legendary status as a pioneer in the field of growth investing. Morningstar has called him "one of the great investors of all time". In Common Stocks and Uncommon Profits, Fisher said that the best time to sell a stock was "almost never". His most famous investment was his purchase of Motorola, a company he bought in 1955 when it was a radio manufacturer and held until his death. 
His son Kenneth L. Fisher also founded an investment firm.
Fisher's 15 Points
Fisher's famous "Fifteen Points to Look for in a Common Stock" from "Common Stocks and Uncommon Profits" are a qualitative guide to finding well managed companies with growth prospects. According to Fisher, a company must qualify on most of these 15 points to be considered a worthwhile investment:
1. Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years? A company seeking a sustained period of spectacular growth must have products that address large and expanding markets.
2. 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? All markets eventually mature, and to maintain above-average growth over a period of decades, a company must continually develop new products to either expand existing markets or enter new ones.
3. How effective are the company's research-and-development efforts in relation to its size? To develop new products, a company's research-and-development (R&D) effort must be both efficient and effective.
4. Does the company have an above-average sales organization? Fisher wrote that in a competitive environment, few products or services are so compelling that they will sell to their maximum potential without expert merchandising.
5. Does the company have a worthwhile profit margin? A company can show tremendous growth, but the growth must bring worthwhile profits to reward investors.
6. What is the company doing to maintain or improve profit margins? Fisher stated, "It is not the profit margin of the past but those of the future that are basically important to the investor." Because inflation increases a company's expenses and competitors will pressure profit margins, you should pay attention to a company's strategy for reducing costs and improving profit margins over the long haul. This is where the moat framework we've spoken about throughout the Investing Classroom series can be a big help.
7. Does the company have outstanding labor and personnel relations? According to Fisher, a company with good labor relations tends to be more profitable than one with mediocre relations because happy employees are likely to be more productive. There is no single yardstick to measure the state of a company's labor relations, but there are a few items investors should investigate. First, companies with good labor relations usually make every effort to settle employee grievances quickly. In addition, a company that makes above-average profits, even while paying above-average wages to its employees is likely to have good labor relations. Finally, investors should pay attention to the attitude of top management toward employees.
8. Does the company have outstanding executive relations? Just as having good employee relations is important, a company must also cultivate the right atmosphere in its executive suite. Fisher noted that in companies where the founding family retains control, family members should not be promoted ahead of more able executives. In addition, executive salaries should be at least in line with industry norms. Salaries should also be reviewed regularly so that merited pay increases are given without having to be demanded.
9. Does the company have depth to its management? As a company continues to grow over a span of decades, it is vital that a deep pool of management talent be properly developed. Fisher warned investors to avoid companies where top management is reluctant to delegate significant authority to lower-level managers.
10. How good are the company's cost analysis and accounting controls? A company cannot deliver outstanding results over the long term if it is unable to closely track costs in each step of its operations. Fisher stated that getting a precise handle on a company's cost analysis is difficult, but an investor can discern which companies are exceptionally deficient--these are the companies to avoid.
11. 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? Fisher described this point as a catch-all because the "important clues" will vary widely among industries. It is critical for an investor to understand which industry factors determine the success of a company and how that company stacks up in relation to its rivals.
12. Does the company have a short-range or long-range outlook in regard to profits? Fisher argued that investors should take a long-range view, and thus should favor companies that take a long-range view on profits. In addition, companies focused on meeting Wall Street's quarterly earnings estimates may forgo beneficial long-term actions if they cause a short-term hit to earnings. Even worse, management may be tempted to make aggressive accounting assumptions in order to report an acceptable quarterly profit number.
13. 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? As an investor, you should seek companies with sufficient cash or borrowing capacity to fund growth without diluting the interests of its current owners with follow-on equity offerings.
14. Does management talk freely to investors about its affairs when things are going well but "clam up" when troubles and disappointments occur? Every business, no matter how wonderful, will occasionally face disappointments. Investors should seek out management that reports candidly to shareholders all aspects of the business, good or bad.
15. Does the company have a management of unquestionable integrity? "If there is a serious question of the lack of a strong management sense of trusteeship for shareholders, the investor should never seriously consider participating in such an enterprise."
Fisher's Important Don'ts for Investors
In investing, the actions you don't take are as important as the actions you do take. Here is some of Fisher's advice on what you should not do.
1. Don't overstress diversification.
2. Don't follow the crowd.
3. Don't quibble over eighths and quarters.
Books by Philip A. Fisher
- Common Stocks and Uncommon Profits (ISBN 047111927X), Harper & Bros., 1958
- Paths to Wealth through Common Stocks, Prentice-Hall, Inc., 1960
- Conservative Investors Sleep Well, Harper & Row, 1975
- Developing an Investment Philosophy (Monograph), The Financial Analysts Research Foundation, 1980
- Warren Buffett
- Kenneth L. Fisher
- Benjamin Graham
- Thomas Rowe Price, Jr.
- John Burr Williams
- Growth investing
- Wall Street
- Fisher obituary by his son Kenneth L. Fisher at Forbes.com
- Fisher obituary at Fool.com
- Sayings on markets by Philip Fisher
- Review of Common Stocks and Uncommon Profits
- Learning from the Long Men, National Review Online