Philip Fisher in his book "Common Stocks and Uncommon Profits" explains that there are a shedload 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.
His technique, which he's dubbed "scuttlebutt", appears to be time-consuming and a lot of hard work.
Perhaps it worked in his day but we can't see how it could be employed in today's environment.
However, what we particularly liked about his book was his 15 stock picking criteria.
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 a fan 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
Despite what we think, this book is regarded by many (including Warren Buffett) as a true classic.
Written in 1958 it was regarded then as a must read. And to be fair, if Warren recommends this book then it has to be good.
It is still worthy of a place on everybody's bookshelf because so many successful investors think its pages contain words of wisdom.
We won't argue with that.
Paths to Wealth Through Common Stocks by Philip A. Fisher
Conservative Investors Sleep Well by Philip Fisher
To be honest, if Warren Buffett hadn't raved about the writings of Philip Fisher we may not have read his first book in its entirety.
We we're glad that we did.
We stuck with it and gleaned lots of wisdom 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 had a little difficulty making any sense of his 'scuttlebutt' technique. We just didn't get it.
To be fair, that's about the only negative that we had for the book.