How to select the best growth companies using Philip Fisher Approach?
Philiper Fisher’s most famouns investment? He bought Motorola in 1955 and held it until he passed away in 2004. It’s a beautiful example of letting your winners run. He’s also the inventor of the ‘scuttlebutt’ method, an investment method that Peter Lynch used a lot. Scuttlebutt refers to the idea that if you’re interested in a certain company, you should go talk with their customers, competitors, (former) employees, and so on.
Warren Buffett once called Philip Fisher’s book Common Stocks and Uncommon Profits one of the best books on investing that has ever been written.
–“I am an eager reader of whatever Philip Fisher has to say. And I recommend him to you.” – Warren Buffett
If even Warren Buffett admires Philip Fisher, shouldn’t you? He used the same 15-step approach over and over again to select the best growth companies:
1- Can the company grow its sales at attractive rates?
2- Does the company keep developing new products to increase its sales potential?
3- How effective is the company’s R&D?
4- Does the company have an above-average sales organization?
5- Has the company a high profit margin?
6- What is the company doing to maintain or improve profit margins?
7- Does the company have outstanding labor and employee relations?
8- Has the company outstanding executive relations?
9- Does the company have depth to its management?
All humans are finite:
10- How good are the company’s cost analysis/accounting controls?
11- Look at patents.
Strong patent positions can allow a company to operate at high sustained profit margins. However, as soon as a patent’s tenure ends, a company’s profit may suffer badly.Characteristics such as skilled labors, a high reputation, existing market share or patents can help a company to gain or maintain its competitive advantage:
12- Does the company think on the long term?
13- Is the company diluting shareholders?
14- Does management admit its mistakes?
15- Has the company a management of unquestionable integrity.
