Philip Fisher in his book "Common Stocks and Uncommon Profits" explains that there are a shed-load of things that you can learn about a company that may not appear in their report and accounts.
He reckons it is possible to get the opinions of a wide spectrum of people that are connected with the company such as employees, ex-employees, customers, suppliers, salespeople, etc.
'Philip Fisher reckoned that an outstanding company should give positive answers to just about all of the 15 questions.
We'd best reveal the 15 questions then, so you can judge for yourself:
1. Does the company currently have the potential of several years of growth?
2. Is the company likely to produce new products and processes in the future?
3. Is the company research and development department effective, given the company's size?
4. Does the company have an above average sales organisation?
5. Does the company have a worthwhile profit margin?
6. What is the company doing to maintain or improve profit margins?
7. Does the company have outstanding labour and personnel relations?
8. Does the company have outstanding executive relations?
9. Does the company have depth to its management?
10. How good are the company's cost analysis and accounting controls?
11. Are there any other aspects of the business that might give an investor important clues as to how outstanding the company may be in relation to its competitors?
12. Is the company short termist or long termist?
13. Will there be equity financing in the near future that will damage the shareholders' interests?
14. Do managers talk freely to investors when all is well but clam up when there is trouble?
15. Does the management have integrity?
There you go.
Philip Fisher's 15 question criteria for examining a company.
Quite frankly, the average investor may have difficulty in answering some of these. But the majority are do-able.
We're also fans of his 'don'ts'. We've called them 'No No's'. (just to be different).
Philip Fisher, in his time, was a well thought after investor.
He must have been to have been dubbed 'The Father of Growth Investing'.
But just as his 15 share picking criteria are highlighted as what to do, his equally important 10 things not to do also deserve some mention. Here they are:
1. Don't buy into promotional companies
2. Don't ignore a good stock jus because it is traded 'over the counter'
3. Don't buy a share just because you like the 'tone' of the annual report
4. Don't assume that a high price at which a stock may be selling in relation to earnings is necessarily an indication that further growth in those earnings has largely been already discounted in the price
5. Don't quibble over eights and quarters
6. Don't over-stress diversification
7. Don't be afraid to buy on a war scare
8. Don't forget your Gilbert and Sullivan
9. Don't fail to consider times as well as price in buying a true growth stock
10. Don't follow the crowd
Common Stocks and Uncommon Profits by Philip A. Fisher
This book is oustanding for Fisher's 15share picking critria and his 10 'don'ts'
Warren Buffett has high regard for this publication when he is researching the markets for growth stocks. Buffett and Fisher share their conservatism when it comes to investing in shares.
Rules like: Rule #1 - don't lose money and Rule #2 - don't forget Rule #1.
You can get this book by clicking on the link below:
To be honest, if Warren Buffett hadn't raved about the writings of Philip Fisher we may not have read this book in its entirety.
We found it a little bit 'staccato.'
But we stuck with it and probably gleaned something from between its covers. Although we had to read some of the chapters more than once.
Some of Fisher's share picking criteria we can make sense of. As with some of his 'don'ts.'
We couldn't make any sense of his 'scuttlebutt' technique. None at all.
To put it into another perspective, in the book's preface, written by Fisher's son, he states: "This book grows on you. I know because it grew on me. It took me about fifteen years to understand 'Common Stocks and Uncommon Profits' "
He was only eight when he first read it. But he went on to found a large investment management company and many other achievements in the financial sector.