Ten great investors

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3. Philip A Fisher

Job description

Investment advisor at his own San Francisco-based firm.

Investment style

Ultra long-term buy-and-hold investor in technology growth stocks.

Profile

After training as an analyst in a San Francisco bank, Phil Fisher started his own investment advisory business in 1931. He has always specialized in the type of firm for which California is best known: innovative technology companies driven by research and development. But he began almost 40 years before the name Silicon Valley was even thought of.

The firms he bought for his clients then were relatively low-tech, such as Dow Chemical or Food Machinery Corporation. Later on, he was one of the first professional investors to recognize the merits of hi-tech firms like Motorola and Texas Instruments when they were starting out.

Now in his nineties, he is still working in the same way he has always done. He is an extremely logical and methodical man, who only selects companies for purchase after a painstaking process of trawling through trade literature and interviewing managers and competitors. But he also has an unconventional and contrarian turn of mind, which helps him to spot value before the crowd.

Long-term returns

Not known.

Biggest success

Fisher acquired a lot of stock in Texas Instruments in 1956, long before it went public in 1970. It was first quoted at around $2.70, and has recently gone as high as $200 - a rise of 7,400% even without dividends. Fisher's own gains have probably been significantly higher, given that he bought the shares privately.

Methods and guidelines

Concentrate your attention and your cash on young growth stocks.

In order to identify and research promising prospects,

• read everything you can lay your hands on, from trade journals to brokers' reports
• interview those in the know, such as managers and employees, but especially suppliers, customers and competitors, who will be more forthcoming
• visit various company sites if you can, and not just the headquarters.

Before you buy, make sure you get satisfactory answers to 15 key questions:

1. Does the company have products or services with sufficient market potential to make possible a sizeable increase in sales for at least several years?
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?
3. How effective are the company's research and development efforts in relation to its size?
4. Does the company have an above average sales organization?
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 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?
12. Does the company have a short-range or a long-range outlook in regard to profits?
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?
14. Does the management talk freely to investors about its affairs when things are going well, but 'clam up' when troubles and disappointments occur?
15. Does the company have a management of unquestionable integrity?

Source:Common Stocks and Uncommon Profits, P Fisher, 1958

There are only ever three reasons to sell:

1. If you have made a serious mistake in your assessment of the company
2. If the company no longer passes the 15 tests as clearly as it did before
3. If you could reinvest your money in another, far more attractive company. But before you do this, you must be very sure of your reasoning.

Key sayings

"I don't want a lot of good investments; I want a few outstanding ones."

"The greatest investment reward comes to those who by good luck or good sense find the occasional company that over the years can grow in sales and profits far more than industry as a whole."

"The business 'grapevine' is a remarkable thing. It is amazing what an accurate picture of the relative points of strength and weakness of each company in an industry can be obtained from a representative cross-section of the opinions of those who in one way or another are concerned with any particular company."

"If the job has been correctly done when a common stock is purchased, the time to sell it is - almost never."

Further information

Fisher outlined his views and methods in the book Common Stocks and Uncommon Profits, first published in 1958. The 1996 edition published by J Wiley also comprises two shorter pieces, 'Conservative Investors Sleep Well' and 'Developing an Investment Philosophy', a highly educational account of his early experiences.

1. Warren Buffett 2. T Rowe Price 3. Philip A Fisher 4. Kenneth L Fisher 5. Jim Slater 6. Peter Lynch 7. Ralph Wanger 8. William O'Neil 9. Sir John Templeton 10. John Neff 11. Conclusion

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