Introduction
Philip Arthur Fisher is a famous economist and professional investor. Being a modest man, he gave few interviews, but he wrote four short books in which he laid out his view of the world of finance. “Ordinary Stocks and Extraordinary Returns” is a collection that includes three major works that are rightfully considered classics in the field. This investor has a strategy that has helped him achieve considerable success. Philip Fisher graduated from the Stanford University Graduate School of Business Administration.
Success and Failures
Fisher quickly realized that he was ready to run his own business. He did not hesitate to drop out of university and work as an analyst at the Anglo-London Bank in San Francisco. During the depression, many experienced executives looked for any way to stay afloat. They were not shy about listening to offers, even from such an unknown young man as Philip Fisher. As a result, after a short period of work as a stock trader, in 1931, Philip opened his firm, Fisher & Co. Even though Fisher died in 2004, his book “Ordinary Shares, extraordinary profits,” in which he first proposed the scuttle-butting approach to investing, is still popular (Journey, 2018). Fischer’s principles guide even Warren Buffet; he openly declares that he learned the so-called Auditory Approach to investing thanks to Fischer.
Investment Style Specifics, Philosophy, and Strategy
Fisher preferred to study people and organizations instead of analyzing balance sheets – this is his pioneering contribution to securities analysis. Philip Fisher argued that it is better to focus on ten good investments (Baid, 2020). According to Fisher, money should be invested in companies that have enough momentum to keep them moving for three to five years, enough to generate profits in the medium term. Important qualities for management he considered integrity, a traditional form of accounting, accessibility, favorable long-term prospects, openness to change, excellent financial controls, and favorable personnel policies. Important business attributes were growth orientation, high net income, high return on capital, focus on research and development, excellent sales organization, industry leadership, and patented products or services. Philip Fisher researched company information very deeply and thoroughly. He used a seemingly very simple tool he called “gossip” or “business rumor”; it was through this technique that he made his choices.
How Fisher Searched for the Best Ideas
The search process was divided into three main stages. The first stage is the search for a wide range of ideas, 200-250 potential investments. Fisher got 80% of his ideas from conversations with other market professionals well-versed in the issue. The other 20% he got from his friends in other industries. A cursory examination of financial reports is worth looking at profitability and revenue growth. Fisher tried to keep the top 20% of the original number of companies. This number may well be studied in more detail by now. All remaining companies are studied through the lens of the 15 conditions of success. Fisher suggested making the most of outside sources of information, former employees, industry experts, suppliers, customers, and any rumors in the newspapers and on the street. Thus, he looked for what might not be included in stock prices or hidden behind reported figures. In the end, only a few of the most reliable companies were usually left.
Valuation Techniques Used by Philip Fisher
Fisher devised an analysis strategy consisting of 15 main points to analyze a stock. Fisher was the first prominent investor who extensively analyzed companies (Biasi, Spieler, and Varejao, 2020). In his opinion, a company must meet all or at least most of these points to succeed.
Risk Management/Exit Strategies
Fisher admits that the timing of buying is a very difficult question where a completely reliable method does not exist. One of the best ways is to buy stocks gradually over several years. That way, the investor will not buy all the shares at the peaks but instead will be able to gain more on quick sales and will be able to estimate the actual price of the company more accurately. Fisher’s advice on when to sell a stock is brief; if the purchase is properly analyzed, the stock can be held forever; nevertheless, Fisher did sell stock from time to time.
What Makes it Difficult to Repeat the Strategy
Philip Fisher’s strategy should be applied in markets where many companies are opaque to the average investor, making them risky investments for novice investors. One could say that the strategy’s focus on the ’60s market makes it difficult to use in today’s world. It is worth mentioning that it takes some knowledge and experience to replicate an investor’s strategy. It takes a long and diligent market study to achieve the same professionalism as Fisher.
My Top 2 Stocks
After analyzing them and answering the 15 questions of the Fisher valuation method, the best stocks among the FTSE 100 stocks could be Rolls-Royce Motor Cars and Vodafone Group. These companies are promising because their products have market potential, there is demand for them, and their strategy is focused on long-term profits. It is worth noting that these companies are time-tested, and their stock can be held for the long term. After analyzing the reviews of employees and customers of these companies, it can be noted that they are quite transparent and reliable.
Conclusion
In conclusion, I would like to say that Fisher’s strategy is effective but not fully oriented to modern realities. Some points investors should take into account when building their strategy. It is necessary to draw conclusions and make decisions based on great investors like Fisher’s opinion to achieve significant heights. However, the main thing in this matter should remain the investor’s experience and opinion.
Reference List
Baid, G. (2020) ‘The dynamic art of portfolio management and individual position sizing’, in Baid, G.(ed.) The Joys of Compounding. New York: Columbia University Press, pp. 243-252
Biasi, N., Spieler, A.C. and Varejao, R. (2020) ‘Equity Investing Strategies’, in Baker, H. K. Greg F. and Kiymaz, H. Equity Markets, Valuation, and Analysis. Hoboken: John Wiley & Sons, pp. 231-242.
Journey, W.B.S. (2018) The Secrets of Successful Value-Growth Investors. Singapore: John Wiley & Sons.