Add fisher-investing skill: Philip Fisher growth stock methodology
This commit is contained in:
simbaji
parent
887114fd09
commit
6fe2c9596f
|
|
@ -0,0 +1,171 @@
|
|||
# Fisher's Don'ts: Ten Common Investor Mistakes
|
||||
|
||||
Fisher dedicated two chapters to mistakes that cost investors dearly. These are not obscure errors — they are systematic patterns he observed repeatedly among otherwise intelligent people.
|
||||
|
||||
---
|
||||
|
||||
## THE FIVE DON'TS (CHAPTER 8)
|
||||
|
||||
### Don't 1: Don't Buy Into Promotional Companies
|
||||
|
||||
**The mistake**: Investing in companies that are still in the concept/startup phase, before they have established operations.
|
||||
|
||||
**Why it's dangerous**:
|
||||
- In an established company, you can observe production, sales, accounting, management teamwork. You can get opinions from qualified observers.
|
||||
- In a promotional company, you're reading a blueprint and guessing. This allows a far greater probability of error.
|
||||
- Promotional companies are often dominated by one or two brilliant people who are superb at one thing (inventing, selling) but lack other essential skills.
|
||||
|
||||
**Fisher's rule**: "No matter how appealing promotional companies may seem at first glance, I believe their financing should always be left to specialized groups." Individual investors — those who cannot supply management talent to fill gaps as problems emerge — should not invest in promotional-stage companies.
|
||||
|
||||
**There are enough outstanding opportunities among established companies that this rule is worth following strictly.**
|
||||
|
||||
---
|
||||
|
||||
### Don't 2: Don't Ignore Good Stocks Just Because They Trade Over-the-Counter
|
||||
|
||||
**Context**: In Fisher's era (1950s–60s), many investors thought only NYSE-listed stocks were safe.
|
||||
|
||||
**Fisher's finding**: The better over-the-counter stocks often have comparable or superior liquidity to stocks on smaller regional exchanges. The quality of the business matters far more than where it trades.
|
||||
|
||||
**Modern application**: Don't avoid small-cap or ADR-listed companies simply because they're not on a major index. Evaluate the business, not the listing venue.
|
||||
|
||||
---
|
||||
|
||||
### Don't 3: Don't Buy a Stock Because You Like the Annual Report's "Tone"
|
||||
|
||||
**The mistake**: Being swayed by well-written, attractively formatted, optimistic annual reports.
|
||||
|
||||
**The reality**: Annual reports are marketing documents designed to build goodwill. They are written to put the company's best foot forward. The public relations department often writes the CEO's letter. Nice photographs do not indicate a cohesive management team.
|
||||
|
||||
**Fisher's rule**: Go beyond the annual report to the underlying facts — especially to scuttlebutt. The tone of the report tells you about the PR department, not the company.
|
||||
|
||||
**One exception**: If a company's annual report fails to give proper information on matters of real significance to investors, that lack of transparency *is* a signal — a negative one (see Point 14 about management clamming up).
|
||||
|
||||
---
|
||||
|
||||
### Don't 4: Don't Assume a High P/E Means Growth Has Been "Discounted"
|
||||
|
||||
**The mistake**: Seeing a stock at 30× earnings (vs. market average of 15×) and assuming "all the good news is already priced in."
|
||||
|
||||
**Why this is wrong**:
|
||||
- If a company has *consistently* traded at 2× the market P/E for 30 years because of its sustained excellence, and it continues to be excellent, it will likely trade at 2× market P/E five years from now too.
|
||||
- So if earnings double in 5 years, the stock price should also double — even at the same "elevated" relative P/E.
|
||||
- The error is using the *wrong benchmark* (market average P/E) instead of the company's *own historical P/E range*.
|
||||
|
||||
**Fisher's test**: The key question is whether the growth is a one-time spurt (in which case the elevated P/E *will* compress back to average when growth ends) or sustained ongoing growth (in which case the elevated P/E is permanent and justified).
|
||||
|
||||
**Implication**: Some of the stocks that "appear highest priced may, upon analysis, be the biggest bargains."
|
||||
|
||||
---
|
||||
|
||||
### Don't 5: Don't Quibble Over Eighths and Quarters
|
||||
|
||||
**The mistake**: Refusing to pay the current market price, instead placing a limit order a fraction of a point lower.
|
||||
|
||||
**Fisher's actual example**: An investor wanted 100 shares at 35¼. He refused to pay it and set a limit at 35. The stock never hit 35 again. 25 years later (adjusting for splits) the stock was at 500+. He saved $50 and missed ~$46,500.
|
||||
|
||||
**The math**: $46,500 is 930× $50. You would have to save $50 from 930 different "eighths" just to break even on this one decision.
|
||||
|
||||
**Fisher's rule**: For small investors wanting a few hundred shares — if the stock is the right one and the price is reasonable, buy at the market. The difference of an eighth or quarter is utterly insignificant against a multi-year holding.
|
||||
|
||||
**For large investors** wanting thousands of shares: Work with your broker on a strategy to accumulate shares without moving the market — but still give the broker latitude on price rather than setting rigid limits.
|
||||
|
||||
---
|
||||
|
||||
## FIVE MORE DON'TS (CHAPTER 9)
|
||||
|
||||
### Don't 6: Don't Overdiversify
|
||||
|
||||
**The common error**: Owning 25–50 stocks to "be safe."
|
||||
|
||||
**Why over-diversification hurts**:
|
||||
- Forces you to allocate capital to companies you don't know well.
|
||||
- Impossible to keep meaningful track of 30+ companies.
|
||||
- Dilutes your best ideas with mediocre ones.
|
||||
- "A little bit of a great many can never be more than a poor substitute for a few of the outstanding."
|
||||
|
||||
**Fisher's paradox**: Investors are so afraid of "too few eggs in one basket" that they put too little into companies they thoroughly understand and too much into companies they know nothing about. Owning an unknown company is *more* dangerous than owning a concentrated position in a well-understood excellent company.
|
||||
|
||||
**Fisher's minimum diversification guidelines:**
|
||||
|
||||
| Company Type | Maximum % of Original Capital Per Position | Minimum # of Positions |
|
||||
|---|---|---|
|
||||
| Type A: Large, established growth stocks (like Dow, Du Pont, IBM) | 20% per position | 5 stocks minimum |
|
||||
| Type B: Mid-sized growth companies ($15–100M revenue, strong management team) | 10% per position | 10 stocks minimum |
|
||||
| Type C: Small, high-risk/high-reward companies | 5% per position | 20 stocks minimum (to get adequate diversification of this risk) |
|
||||
|
||||
**Note**: These are *minimums* — it's fine to hold fewer stocks if they're truly outstanding. The constraint is knowledge, not safety theater.
|
||||
|
||||
**Fisher's practical observation**: In practice, most serious investors' real problem is finding enough great investments, not having too many. A long list of securities is usually a sign of an investor who is unsure of themselves, not a brilliant diversifier.
|
||||
|
||||
**Key exception**: If one holding grows dramatically to become 40% of your portfolio, don't automatically sell it for diversification. The growth happened because the business is excellent. Rebalancing away from your winners is often a mistake.
|
||||
|
||||
---
|
||||
|
||||
### Don't 7: Don't Sell Because of War Scares
|
||||
|
||||
Already covered in detail in `references/when-to-buy-sell.md`.
|
||||
|
||||
**Summary**: Every 20th-century war ended with stocks far higher than they started. War is bearish on money (inflation), not on stocks. Selling during war scares is "extreme financial lunacy." Buy during war scares; buy more when actual hostilities begin.
|
||||
|
||||
---
|
||||
|
||||
### Don't 8: Don't Forget That Facts Change — Historical Statistics Are Often Misleading
|
||||
|
||||
**Fisher's "Gilbert and Sullivan" warning**: Like "flowers that bloom in the spring, tra-la," historical price ranges and historical EPS "have nothing to do with the case."
|
||||
|
||||
**The mistake — historical price ranges**: Looking at where a stock traded for the past 5 years to determine a "fair" price today. Stock prices reflect the consensus value of the business *at the time they were set*. The business may be fundamentally more or less valuable today.
|
||||
|
||||
**The mistake — historical EPS**: Using past 5 years' earnings as the primary valuation metric. This is like driving using only the rearview mirror. "What is necessary is to find the right answer a large proportion of the very small number of times actual purchases are made."
|
||||
|
||||
The next 5 years of earnings are what matter, not the last 5.
|
||||
|
||||
**Why analysts feed you backward-looking statistics**: Because historical facts are indisputably correct — no one can be embarrassed by reporting what already happened. Forward-looking analysis can be proven wrong, so there's an incentive to stick to safe, historical data. Don't confuse factual precision with investment relevance.
|
||||
|
||||
---
|
||||
|
||||
### Don't 9: Don't Confuse Insider Selling with a "Sell" Signal
|
||||
|
||||
Fisher discusses a specific case (Texas Instruments, 1956):
|
||||
- Officers sold shares.
|
||||
- Wall Street: "We agree with them — sell!"
|
||||
- Reality: The officers were selling small portions of heavily concentrated positions for estate planning, diversification, and liquidity reasons entirely unrelated to their view of the company's future.
|
||||
- The company proceeded to rise 1000%+ in the following years.
|
||||
|
||||
**Fisher's nuanced view on insider selling**:
|
||||
- Small sales by officers of genuinely outstanding companies are often prudent personal financial management, not bearish signals.
|
||||
- Officers of great growth companies frequently become multi-millionaires through their holdings. It is entirely rational to take a little off the table for estate planning, diversification, or cash needs.
|
||||
- The *amount* and *pattern* matter: one officer selling 2% of their position is very different from five insiders selling large blocks simultaneously.
|
||||
|
||||
**What *does* matter**:
|
||||
- If *all* key insiders are selling *large* portions simultaneously.
|
||||
- If insiders are buying in bad times (a positive signal).
|
||||
|
||||
---
|
||||
|
||||
### Don't 10: Don't Fail to Consider Opportunity Cost
|
||||
|
||||
This is implicit throughout Fisher's writing but deserves explicit statement:
|
||||
|
||||
**The mistake**: Holding a mediocre investment because it might "come back" or because selling would mean admitting a mistake.
|
||||
|
||||
**Fisher's calculation**: If you have $100K in a stock you bought in error, and you sell at a 20% loss ($80K) and redeploy into an outstanding growth stock that triples over 5 years, you end at $240K. If you hold the mistake and it merely recovers to $100K over 5 years, you end at $100K. The "shame" of the 20% loss cost you $140K in opportunity.
|
||||
|
||||
**The habit to build**: Regularly ask whether each holding, if it were cash today, would be your first choice to buy. If not, consider why you're holding it.
|
||||
|
||||
---
|
||||
|
||||
## SUMMARY TABLE: FISHER'S DON'TS
|
||||
|
||||
| # | Don't | The Core Error |
|
||||
|---|-------|----------------|
|
||||
| 1 | Buy promotional/startup companies | Can't assess what can't be observed |
|
||||
| 2 | Avoid OTC stocks | Listing venue ≠ quality |
|
||||
| 3 | Buy on annual report "tone" | Marketing ≠ reality |
|
||||
| 4 | Assume high P/E = already discounted | Wrong benchmark; future matters |
|
||||
| 5 | Quibble over eighths and quarters | $50 saved vs. tens of thousands lost |
|
||||
| 6 | Over-diversify | Dilutes knowledge and best ideas |
|
||||
| 7 | Sell on war scares | War is bearish on money, not stocks |
|
||||
| 8 | Over-rely on historical price/EPS data | Past facts ≠ future value |
|
||||
| 9 | Treat all insider selling as bearish | Often personal financial management |
|
||||
| 10 | Ignore opportunity cost of holding mistakes | The real cost is what you don't make |
|
||||
|
|
@ -0,0 +1,243 @@
|
|||
# The Fifteen Points: Fisher's Growth Stock Criteria
|
||||
|
||||
This is Fisher's complete framework for evaluating whether a company qualifies as an outstanding long-term investment. A company that scores well on most of these points — especially integrity — can produce gains of several hundred percent over a decade.
|
||||
|
||||
---
|
||||
|
||||
## POINT 1: Does the company have products/services with sufficient market potential to sustain sizable sales growth for at least several years?
|
||||
|
||||
**What to look for:**
|
||||
- Is the market large AND still early-stage? A big market that's nearly saturated (like TV sets in 1960) is a one-time opportunity, not a long-term growth story.
|
||||
- Does the company have realistic room to grow for the next 3–5 years AND beyond?
|
||||
- Avoid companies with one product surge that will plateau (e.g., a radio manufacturer when TV adoption peaked).
|
||||
|
||||
**Fisher's two archetypes of great growth:**
|
||||
- "Fortunate and Able" companies: In great industries that grew bigger than anyone imagined (Alcoa / aluminum). They had luck AND skill.
|
||||
- "Fortunate Because They Are Able" companies: Created their fortune through superior management skill — they steered into growth, didn't just ride it (Du Pont: from blasting powder to nylon, cellophane, neoprene).
|
||||
|
||||
**Red flags:**
|
||||
- Industry growth is a one-time surge (pandemic-era demand, a single regulation change)
|
||||
- Market is becoming saturated
|
||||
- No clear path to the *next* wave of growth after current products mature
|
||||
|
||||
**Key question**: Is this company's growth likely to continue for *several* multi-year periods, or is it a one-time event?
|
||||
|
||||
---
|
||||
|
||||
## POINT 2: Does management have the determination to develop new products/processes to sustain growth *after* current products are exploited?
|
||||
|
||||
**What to look for:**
|
||||
- Does management actively recognize they will "grow up" to their current market and need new ones?
|
||||
- Is there an active R&D pipeline aimed at adjacent markets?
|
||||
- Contrast: a company enjoying current success with no plan for next-generation products vs. one like Motorola, which used its electronics expertise to build two-way communications, semiconductors, and stereophonic audio *before* the TV market plateaued.
|
||||
|
||||
**Key distinction from Point 1**: Point 1 is a *fact* (how big is the current opportunity). Point 2 is *management attitude* (are they building for what comes next?).
|
||||
|
||||
**Best pattern**: R&D that expands from the company's existing expertise — "clusters of trees each growing from their own trunk." Scattered R&D in unrelated industries is less reliable.
|
||||
|
||||
---
|
||||
|
||||
## POINT 3: How effective is the company's R&D relative to its size?
|
||||
|
||||
**What to look for:**
|
||||
- R&D spending as % of sales is a *starting clue only* — don't over-rely on it. Companies define R&D expense very differently.
|
||||
- What matters: actual output — how many profitable new products has this R&D produced in the last decade?
|
||||
- Team coordination matters as much as talent: research must link tightly to production and sales. Brilliant researchers creating unbuildable or unsellable products are wasteful.
|
||||
- Beware "crash programs" — managements that constantly restart research projects waste money and demoralize researchers.
|
||||
- Government-funded defense R&D has uneven value: best when the technical knowledge can be transferred to commercial applications (Texas Instruments, Ampex did this brilliantly).
|
||||
|
||||
**The best proxy**: Has this R&D engine produced a meaningful stream of profitable new products in the past 10 years? If yes, it will likely continue.
|
||||
|
||||
---
|
||||
|
||||
## POINT 4: Does the company have an above-average sales organization?
|
||||
|
||||
**What to look for:**
|
||||
- The best products won't reach their potential without skilled distribution. This is one of the three pillars of corporate success (alongside production and research).
|
||||
- Look at how much the company invests in training its salespeople. IBM in the 1960s had salespeople spend a *third* of their time in company-run schools.
|
||||
- Dow Chemical selected and trained salespeople with the same rigor as research chemists.
|
||||
- Companies that rely only on product quality without strong distribution are vulnerable.
|
||||
|
||||
**Best source of information**: Scuttlebutt. Competitors and customers know exactly how good a company's sales organization is and are usually willing to say. This is one of the easiest points to investigate externally.
|
||||
|
||||
**Red flag**: A company with great products but a weak or mediocre sales force.
|
||||
|
||||
---
|
||||
|
||||
## POINT 5: Does the company have a worthwhile profit margin?
|
||||
|
||||
**What to look for:**
|
||||
- Study profit margins over multiple years, not just one year. Boom years inflate margins for all companies, especially weaker ones.
|
||||
- The *strongest* companies have the best margins across economic cycles, not just during peaks.
|
||||
- Marginal companies (low profit margins) show dramatic margin expansion in good years — but equally dramatic collapse in bad years. They are not the right long-term investment.
|
||||
|
||||
**Important exception**: A company deliberately sacrificing near-term margins to fund growth (through heavy R&D or aggressive market expansion) may still qualify — but you must be absolutely certain the low margin is *intentional and temporary*, not structural weakness.
|
||||
|
||||
**Red flag**: Persistently thin margins that don't reflect a deliberate growth strategy. "Marginal companies" rarely produce the best long-term returns.
|
||||
|
||||
---
|
||||
|
||||
## POINT 6: What is the company doing to maintain or improve profit margins?
|
||||
|
||||
**What to look for:**
|
||||
- In today's economy, cost pressures (wages, materials, taxes) are constant. How is the company fighting back?
|
||||
- The *worst* approach: relying solely on price increases. When an industry raises prices, it attracts competition and eventually oversupply erodes the advantage (see: aluminum 1956, copper cycle).
|
||||
- The *best* approach: active internal cost reduction — capital improvement programs, automation, process redesign, logistics optimization.
|
||||
- Does the company have a dedicated engineering/operations department specifically focused on cost reduction?
|
||||
|
||||
**What to ask management**: What specific programs are in place to reduce costs? What has been saved in the past 3 years through these programs?
|
||||
|
||||
---
|
||||
|
||||
## POINT 7: Does the company have outstanding labor and personnel relations?
|
||||
|
||||
**Indicators of good labor relations:**
|
||||
- Non-union status in a unionized area (e.g., Motorola in Chicago, Texas Instruments in Dallas) — workers choose not to unionize when they feel fairly treated.
|
||||
- If unionized, a history of reasonable, mutually respectful relations.
|
||||
- Low labor turnover relative to the industry.
|
||||
- Long waiting lists of applicants wanting to work there.
|
||||
- Grievances settled quickly.
|
||||
- Above-average wages for the area (a company earning high profits while paying below-market wages is storing up trouble).
|
||||
|
||||
**Indicators of poor relations:**
|
||||
- Frequent and prolonged strikes.
|
||||
- High turnover.
|
||||
- Management that treats workers as interchangeable — no sense of responsibility.
|
||||
- Workers hired or dismissed in large masses based on slight changes in business outlook.
|
||||
|
||||
**Note**: Absence of strikes alone does NOT mean good relations. Some companies have no strikes because workers fear the consequences, not because they're satisfied.
|
||||
|
||||
---
|
||||
|
||||
## POINT 8: Does the company have outstanding executive relations?
|
||||
|
||||
**What to look for:**
|
||||
- Executives at all levels have confidence in the president/chairman.
|
||||
- Promotions based on ability, not family connections or favoritism.
|
||||
- Salary reviews happen regularly; executives don't have to demand raises.
|
||||
- Salaries in line with industry standards.
|
||||
- Management fills positions from within first; only hires outside when truly no internal candidate exists.
|
||||
- Factionalism and internal friction are actively managed and minimized.
|
||||
- Top brass do NOT personally interfere with day-to-day operating matters.
|
||||
|
||||
**How to assess**: Talk with executives at multiple levels of the organization. The further a company departs from these standards, the less likely it is to be an outstanding investment.
|
||||
|
||||
---
|
||||
|
||||
## POINT 9: Does the company have depth of management?
|
||||
|
||||
**What to look for:**
|
||||
- A small company can do well under one brilliant leader for a while — but all humans are finite.
|
||||
- Once annual sales reach $15–40 million (in 1950s dollars), one-man management becomes a growth constraint.
|
||||
- Key test: Does each level of management have genuine authority to carry out their function? Or do senior leaders constantly override and micromanage?
|
||||
- Does top management welcome suggestions from junior personnel, even when those suggestions criticize current practices?
|
||||
|
||||
**Red flag**: Organizations where the "top brass personally interfere with and try to handle routine day-to-day operating matters." This prevents developing the next generation of leaders.
|
||||
|
||||
---
|
||||
|
||||
## POINT 10: How good are the company's cost analysis and accounting controls?
|
||||
|
||||
**What to look for:**
|
||||
- Can management break down costs with sufficient accuracy to know the true cost of each product and each operational step?
|
||||
- Without this, the company cannot: set pricing intelligently, know which products deserve promotion, identify operations running at a loss.
|
||||
|
||||
**Limitation**: This is hard for an outside investor to evaluate precisely. The best proxy is general management quality — a company excellent in most other respects is likely adequate here too.
|
||||
|
||||
**Red flag**: Obvious operational inefficiency, or situations where the company seems unaware of its own cost structure.
|
||||
|
||||
---
|
||||
|
||||
## POINT 11: Are there industry-specific factors that give important clues about the company's competitive position?
|
||||
|
||||
**Examples of industry-specific factors to consider:**
|
||||
- **Retail**: Quality of real estate/lease management — lease costs as % of sales.
|
||||
- **Insurance-intensive industries**: Overall insurance cost relative to peers reveals management skill in handling people, inventory, and property.
|
||||
- **Technology companies**: Patent position — important for young companies as protection while building customer relationships and manufacturing scale; less critical for large established companies (patents expire, and depending on them is a weakness, not a strength).
|
||||
- **Capital-intensive industries**: Credit management efficiency.
|
||||
|
||||
**Fisher's view on patents**: Large companies shouldn't depend primarily on patents for competitive moats — patents expire, and there are usually multiple ways to achieve the same result. Constant *engineering leadership* is more durable than static patent protection.
|
||||
|
||||
---
|
||||
|
||||
## POINT 12: Does the company have a long-range or short-range outlook on profits?
|
||||
|
||||
**Long-range indicators:**
|
||||
- Management willing to forgo some current profit to maintain supplier/customer goodwill.
|
||||
- Pays vendors above contract price when they've had unexpected costs — ensures reliable supply when needed.
|
||||
- Goes to extra trouble to help customers in a bind even at short-term expense.
|
||||
- Builds relationships that produce larger long-run profits over years.
|
||||
|
||||
**Short-range indicators (red flags):**
|
||||
- Constantly makes sharpest possible deals with every supplier.
|
||||
- Never gives anything extra to customers.
|
||||
- Focused on maximizing this quarter's numbers.
|
||||
|
||||
**Best source**: Scuttlebutt from suppliers and customers. This pattern shows up clearly in how a company is talked about in its industry.
|
||||
|
||||
---
|
||||
|
||||
## POINT 13: Will required equity financing cancel out shareholders' benefit from anticipated growth?
|
||||
|
||||
**What to evaluate:**
|
||||
- Does the company have sufficient cash + borrowing capacity to fund the next several years of growth?
|
||||
- If equity financing will be needed soon: will the resulting share dilution significantly reduce per-share earnings growth for current shareholders?
|
||||
- For convertible securities and warrants: calculate dilution as if *fully converted* when assessing real share count.
|
||||
|
||||
**Fisher's principle**: Financial strength matters, but never buy a stock *solely* because of a strong balance sheet if the company fails on the other 14 points. Conversely, don't avoid a company excellent in other respects just because it needs some capital — if it's truly exceptional, future financing will occur at much higher prices, minimizing dilution.
|
||||
|
||||
**Red flag**: Management planning equity financing that will be dilutive *within the next few years* at prices not much above current levels. This reflects poor financial planning.
|
||||
|
||||
---
|
||||
|
||||
## POINT 14: Does management talk freely when things go badly, or do they "clam up"?
|
||||
|
||||
**What to look for:**
|
||||
- Great companies, run by great management, still have failures, plant shake-downs, disappointing products. This is inevitable.
|
||||
- The test is how management communicates during difficulties.
|
||||
- Outstanding management is as forthcoming in bad times as in good — they explain what went wrong, what they're doing about it, and give realistic timelines.
|
||||
|
||||
**Why "clamming up" is a red flag:**
|
||||
- May signal the problem isn't being addressed.
|
||||
- May reflect a management that feels no accountability to shareholders.
|
||||
- May reflect panic rather than problem-solving.
|
||||
|
||||
**Fisher's rule**: Exclude from investment any company that withholds or tries to hide bad news.
|
||||
|
||||
---
|
||||
|
||||
## POINT 15: Does the company have management of unquestionable integrity?
|
||||
|
||||
**This is Fisher's most important and non-negotiable criterion.**
|
||||
|
||||
**Red flags for management integrity:**
|
||||
- Key officers on payroll at salaries far above market value for their work.
|
||||
- Company assets rented or sold to insiders at above-market rates.
|
||||
- Vendor business routed through brokerages owned by insiders.
|
||||
- Excessive, self-serving stock option grants that far exceed fair reward for services.
|
||||
|
||||
**Fisher's rule**: "Regardless of how high the rating may be in all other matters, however, if there is a serious question of the lack of a strong management sense of trusteeship for stockholders, the investor should never seriously consider participating in such an enterprise."
|
||||
|
||||
**This is the only point where a single ❌ disqualifies the investment completely**, regardless of scores on the other 14.
|
||||
|
||||
**Note**: A company can fall down on almost any other single point and still be an interesting investment if it scores highly on all the rest. But integrity failure is absolute.
|
||||
|
||||
---
|
||||
|
||||
## APPLYING THE 15 POINTS: PRACTICAL NOTES
|
||||
|
||||
**What sources to use for each point:**
|
||||
|
||||
| Points | Best Source |
|
||||
|--------|------------|
|
||||
| 1, 2, 3 | Management + industry experts + scuttlebutt from R&D community |
|
||||
| 4 | Customers + competitors (very accessible via scuttlebutt) |
|
||||
| 5, 6, 10 | Financial filings + direct management discussion |
|
||||
| 7, 8, 9 | Scuttlebutt from employees + executives at multiple levels |
|
||||
| 11 | Industry-specific contacts |
|
||||
| 12 | Suppliers + customers |
|
||||
| 13 | Financial filings (calculate diluted shares) |
|
||||
| 14 | Track record of press releases, earnings calls in bad periods |
|
||||
| 15 | Proxy statements + scuttlebutt from insiders and ex-employees |
|
||||
|
||||
**Important**: Points 1–4 (business growth potential) and 15 (integrity) are the most critical. Start your evaluation there.
|
||||
|
|
@ -0,0 +1,178 @@
|
|||
# The Scuttlebutt Method: Fisher's Research Methodology
|
||||
|
||||
Fisher's "scuttlebutt" method is his system for gathering ground-level intelligence about a company before investing. The name comes from the nautical term for the ship's water barrel — where sailors gathered and gossiped. Fisher found that talking to the right people reveals far more about a company than any financial report.
|
||||
|
||||
**Core insight**: Most of what you need to know about a company can be learned from people *outside* the company — customers, competitors, suppliers, ex-employees, scientists in related fields. They know the truth and are often willing to share it.
|
||||
|
||||
---
|
||||
|
||||
## THE SEQUENCE: NEVER VISIT MANAGEMENT FIRST
|
||||
|
||||
Fisher's non-negotiable rule: **Gather at least 50% of required knowledge BEFORE contacting management.**
|
||||
|
||||
Why this matters:
|
||||
1. Without prior research, you don't know what questions to ask.
|
||||
2. Management will not volunteer their own weaknesses. But if you already know about a weakness, a good management will confirm it and explain what they're doing about it.
|
||||
3. Your estimate of management quality is distorted by which executives you happen to meet first. Scuttlebutt helps you know *which* executives matter most and whether to seek them out.
|
||||
4. Companies give far more access and time to informed visitors. Walking in unprepared signals amateur status and gets you routed to a PR person, not decision-makers.
|
||||
|
||||
**Fisher's own ratio**: He bought into 1 out of every 40–50 companies he actually investigated — but he only investigated after extensive scuttlebutt had already made him reasonably confident. If you counted all companies he "considered," the ratio was closer to 1 in 250.
|
||||
|
||||
---
|
||||
|
||||
## STEP 1: FIND AN ORIGINAL LEAD
|
||||
|
||||
Sources Fisher used (ranked by reliability):
|
||||
1. **Trusted investment professionals** with strong track records — a 1-hour conversation with a sharp investment analyst who has studied the company is enormously valuable.
|
||||
2. **Industry executives and scientists** — people who understand the technical landscape of an industry can point to which companies have genuine competitive advantages.
|
||||
3. **Selective use of brokerage reports** — only non-public, detailed reports from top-tier firms. Mass-market brokerage circulars are too superficial and often already known by the market.
|
||||
|
||||
**Initial filter (fast judgment)**:
|
||||
- Is this company in a line of business with genuine long-term growth prospects?
|
||||
- Is the competitive moat defensible — are there meaningful barriers to newcomers displacing this company?
|
||||
|
||||
If both answers are yes, proceed to investigation. If no, move on — great opportunities elsewhere.
|
||||
|
||||
---
|
||||
|
||||
## STEP 2: QUICK DOCUMENT REVIEW (BEFORE FIELDWORK)
|
||||
|
||||
Before making calls, do a brief document scan. Fisher specifically looked at:
|
||||
- **SEC prospectus / annual report**: Product line breakdown by revenue, competitive dynamics, officer/major shareholder stock ownership (proxy statement), R&D expense, depreciation, profit margins, any abnormal costs in prior years.
|
||||
- **Balance sheet**: General financial health and capitalization structure (not for deep analysis yet — just to understand the landscape).
|
||||
|
||||
**What Fisher did NOT do at this stage:**
|
||||
- Spend hours on detailed year-by-year balance sheet analysis.
|
||||
- Contact management.
|
||||
- Ask every broker he knew for their opinion.
|
||||
|
||||
---
|
||||
|
||||
## STEP 3: AGGRESSIVE SCUTTLEBUTT FIELDWORK
|
||||
|
||||
Now make contact with everyone who has direct exposure to the company:
|
||||
|
||||
### Primary Sources
|
||||
|
||||
**Customers**
|
||||
- Do they view the company as a preferred vendor?
|
||||
- Is the product/service considered superior, equal, or inferior to competitors?
|
||||
- How is the sales organization perceived? Helpful? Responsive? Technical?
|
||||
- Would they increase or reduce business with this company?
|
||||
|
||||
**Competitors**
|
||||
- What do they genuinely fear about this company?
|
||||
- Where do they see themselves as stronger?
|
||||
- How do they view this company's management and strategy?
|
||||
- *Note*: Competitors are surprisingly candid about respected rivals.
|
||||
|
||||
**Suppliers**
|
||||
- How does this company treat its vendors?
|
||||
- Is it known for fair dealing or constantly squeezing for the lowest price?
|
||||
- Is it a reliable, long-term partner or does it switch suppliers constantly?
|
||||
- What do they know about the company's financial health and growth plans?
|
||||
|
||||
**Ex-employees**
|
||||
- Why did they leave?
|
||||
- How would they describe the culture and management style?
|
||||
- What were the real weaknesses inside the company?
|
||||
- What are the genuine strengths?
|
||||
- *Note*: Ex-employees are often candid in ways current employees cannot be.
|
||||
|
||||
**Scientists and academics in related fields**
|
||||
- How is this company's research viewed within the scientific community?
|
||||
- Are its researchers respected?
|
||||
- Is it working on genuinely important problems or incremental improvements?
|
||||
- *Especially valuable for technology and pharmaceutical companies.*
|
||||
|
||||
**Industry consultants and bankers**
|
||||
- Commercial bankers who serve the company can often provide introductions to hard-to-reach contacts.
|
||||
- Consultants working in the industry have broad perspective on competitive positioning.
|
||||
|
||||
---
|
||||
|
||||
## STEP 4: USING BANKER INTRODUCTIONS
|
||||
|
||||
If you want to reach someone who won't talk to a cold caller:
|
||||
1. Identify the commercial bank that serves the person you want to meet.
|
||||
2. Contact the bank directly, explain you are doing investment research and want an introduction.
|
||||
3. Be completely transparent about your purpose.
|
||||
4. Most commercial bankers will help — they value relationships with serious investors.
|
||||
5. People introduced by their own banker are far more likely to speak candidly.
|
||||
|
||||
**Fisher's rule**: Never quote anyone derogatorily by name. The moment sources fear being exposed, they stop talking.
|
||||
|
||||
---
|
||||
|
||||
## STEP 5: APPROACHING MANAGEMENT (ONLY AFTER STEP 3)
|
||||
|
||||
Once scuttlebutt has given you a substantial picture, visit management with your knowledge in hand.
|
||||
|
||||
**How to get a good introduction to management:**
|
||||
- Major customers with purchasing relationships.
|
||||
- Large institutional shareholders.
|
||||
- The company's investment banker.
|
||||
- A mutual friend in the industry respected by the management.
|
||||
|
||||
**Why introductions matter**: Management gives far more time and candor to visitors who come with credibility. Cold approaches get routed to investor relations staff, not actual decision-makers.
|
||||
|
||||
**What good management does during a visit:**
|
||||
- Answers questions about weak points as fully as about strong points.
|
||||
- Admits when there are problems and explains the plan to fix them.
|
||||
- Doesn't over-promise.
|
||||
|
||||
**What this visit is for:**
|
||||
- Confirming or disconfirming your scuttlebutt picture.
|
||||
- Getting answers to specific questions you couldn't answer externally.
|
||||
- Assessing management integrity and transparency first-hand.
|
||||
- Identifying which of your earlier fears were real vs. overblown.
|
||||
|
||||
**What to look for in management's responses:**
|
||||
- If you mention a weakness you discovered in scuttlebutt, does management acknowledge it honestly and explain what they're doing? (Good sign.)
|
||||
- Or do they deny it exists? (Red flag — either they don't know their own company, or they're not being straight with you.)
|
||||
|
||||
---
|
||||
|
||||
## KEY SCUTTLEBUTT PRINCIPLES
|
||||
|
||||
**Quantity over any single source**: No single source is fully reliable. Build your picture from 5–10+ independent contacts. Patterns that appear across multiple sources are trustworthy.
|
||||
|
||||
**Look for what's NOT said**: If multiple people avoid discussing a topic, that silence is informative.
|
||||
|
||||
**Competitor praise is the highest signal**: When competitors say something positive about a rival, that's extremely credible. They have every incentive to be negative.
|
||||
|
||||
**Focus your questions on the 15 Points**: Structure your conversations around what you need to know — don't have aimless conversations.
|
||||
|
||||
**Discard if not enough information is available**: Fisher was willing to walk away from a potential investment if scuttlebutt couldn't be assembled. "To make big money on investments it is unnecessary to get some answer to every investment that might be considered. What is necessary is to get the right answer a large proportion of the very small number of times actual purchases are made."
|
||||
|
||||
---
|
||||
|
||||
## WHAT SCUTTLEBUTT REVEALS BEST
|
||||
|
||||
| Point | How well scuttlebutt reveals it |
|
||||
|-------|---------------------------------|
|
||||
| Sales organization quality | ⭐⭐⭐⭐⭐ — customers and competitors know exactly |
|
||||
| R&D effectiveness | ⭐⭐⭐⭐ — scientific community and ex-researchers are candid |
|
||||
| Labor relations | ⭐⭐⭐⭐ — widely known in local business community |
|
||||
| Management integrity | ⭐⭐⭐⭐ — industry reputation spreads quickly |
|
||||
| Long-range vs short-range profit outlook | ⭐⭐⭐⭐ — suppliers and customers see this directly |
|
||||
| Executive relations depth | ⭐⭐⭐ — harder, but multiple executive conversations reveal it |
|
||||
| Cost accounting controls | ⭐⭐ — hard to assess externally, requires management visit |
|
||||
| Market potential (Point 1) | ⭐⭐⭐ — industry experts can assess, but requires judgment |
|
||||
|
||||
---
|
||||
|
||||
## MODERN SCUTTLEBUTT SOURCES
|
||||
|
||||
Fisher wrote in the 1950s. Today, equivalent sources include:
|
||||
- **Glassdoor/Blind reviews**: Employee sentiment (modern equivalent of ex-employee conversations)
|
||||
- **LinkedIn**: Career trajectories of employees — are top people staying or leaving?
|
||||
- **Industry conferences and trade publications**: Technical credibility of the company
|
||||
- **Customer reviews and forums**: Quality and reliability of products/services
|
||||
- **Supplier relationships**: Procurement forums, industry associations
|
||||
- **Earnings call transcripts + analyst Q&A**: How does management respond to hard questions?
|
||||
- **SEC filings for related parties**: Proxy statements reveal insider ownership, related-party transactions (Point 15)
|
||||
- **Patent databases**: Volume and quality of R&D output
|
||||
- **Job postings**: What skills is the company hiring for? (Reveals strategic direction)
|
||||
|
||||
The tools have changed. The method hasn't.
|
||||
|
|
@ -0,0 +1,177 @@
|
|||
# When to Buy and When to Sell: Fisher's Timing Rules
|
||||
|
||||
---
|
||||
|
||||
## WHEN TO BUY
|
||||
|
||||
### The Core Principle: Ignore Economic Forecasting
|
||||
|
||||
Fisher's most counterintuitive rule: **Do not base buying decisions on predictions about the economy or stock market.**
|
||||
|
||||
His reasoning:
|
||||
- In the 1950s (and still today), economic forecasting is more art than science — "about as far along as chemistry was during the days of alchemy."
|
||||
- Opposing forecasts from equally credentialed experts abound. Read back issues of any financial publication — you'll find confident predictions that were spectacularly wrong.
|
||||
- The mental effort the investment world puts into economic forecasting could be far better deployed.
|
||||
- *Exception*: When the economy is so clearly overheated (like 1929) that even rough forecasting is reliable. But such moments occur perhaps once per decade.
|
||||
|
||||
**Fisher's substitute for market timing**: Instead of asking "is the economy favorable?", ask: "Is this specific, outstanding company experiencing a *temporary* problem that has depressed its stock price?"
|
||||
|
||||
---
|
||||
|
||||
### The Four Types of Buying Opportunities
|
||||
|
||||
#### Type 1: New Plant Shake-Down Problems
|
||||
|
||||
**The pattern:**
|
||||
1. A great company announces a revolutionary new manufacturing plant.
|
||||
2. Investors bid up the stock on excitement.
|
||||
3. The plant takes far longer to reach operating efficiency than expected ("bugs in the machinery").
|
||||
4. Unexpected costs depress quarterly earnings.
|
||||
5. Wall Street declares management has "blundered."
|
||||
6. The stock falls to multi-year lows.
|
||||
7. The plant finally operates smoothly — but the *next* quarter still shows low profits from heavy sales investment to build volume.
|
||||
8. **At this point — the stock is potentially a sensational buy.**
|
||||
|
||||
**Why it's an opportunity**: Once a new process works at commercial scale, the second, third, and fourth plants can be built with minimal shake-down costs. Each replication dramatically expands earnings. The first-plant pain is a one-time cost; the benefits compound for years.
|
||||
|
||||
**Key test**: Are the problems *temporary* (engineering challenges being solved) or *permanent* (the product doesn't work / the market isn't there)?
|
||||
|
||||
**Example**: American Cyanamid's Fortier, Louisiana plant (1954) — massive over-run costs, stock fell sharply. Those who understood the temporary nature of the problem bought at 45.5. Within 5 years the stock had roughly tripled.
|
||||
|
||||
#### Type 2: Temporary Corporate Troubles
|
||||
|
||||
**The pattern:**
|
||||
1. A fundamentally excellent company faces a combination of unusual, temporary problems (labor dispute, management personnel change, product misjudgment).
|
||||
2. Earnings fall sharply.
|
||||
3. Stock falls significantly.
|
||||
4. Able management recognizes the problems and has a clear plan to fix them.
|
||||
5. While the plan is being implemented (which takes months, not days), more bad news surfaces.
|
||||
6. **Buying Point A**: Initial drop, plan announced but not yet showing results.
|
||||
7. More short-term trouble (e.g., a second strike during recovery).
|
||||
8. **Buying Point B**: Stock falls again on new bad news despite recovery being close.
|
||||
|
||||
**Key test**: Are the problems being actively addressed by capable management? Is the timeline months, not years?
|
||||
|
||||
**How to apply**: "The investor should be thoroughly sure in his own mind that these troubles are temporary rather than permanent. Then if these troubles have produced a significant decline in the price of the affected stock and give promise of being solved in a matter of months rather than years, he will probably be on pretty safe ground in considering that this is a time when the stock may be bought."
|
||||
|
||||
#### Type 3: Capital Expansion Leverage
|
||||
|
||||
In capital-intensive industries (chemicals, manufacturing):
|
||||
- Company has $10M plant running profitably.
|
||||
- Engineers identify that for an additional $1.5M (15% more capital), output can increase 40%.
|
||||
- The incremental profit margin on that extra 40% output is dramatically higher (almost no additional overhead).
|
||||
- **Buying just before this improvement reaches earnings** can provide an excellent entry.
|
||||
|
||||
#### Type 4: War Scares and Market Panics
|
||||
|
||||
Fisher's counterintuitive rule: **Buy more during war scares, not less.**
|
||||
|
||||
His evidence:
|
||||
- Every major conflict in the 20th century caused stocks to fall sharply at the outset.
|
||||
- At the conclusion of *every* conflict, stocks were trading vastly higher than before the war began.
|
||||
- Modern war forces governments to spend far beyond tax revenues → monetary inflation → stock prices (expressed in units of money) rise.
|
||||
- "War is always bearish on money." Selling stocks to get into cash during a war scare is "extreme financial lunacy."
|
||||
|
||||
**Fisher's rule**: If you've been considering buying a stock and a war scare hits, buy. If actual war breaks out, buy more aggressively (but buy companies whose products/services remain in demand, or which can convert to wartime production).
|
||||
|
||||
---
|
||||
|
||||
## WHEN NOT TO BUY (COMMON TIMING MISTAKES)
|
||||
|
||||
### Mistake 1: Waiting for Economic Clarity
|
||||
|
||||
"I'll buy when the economy looks better." The economy rarely looks perfectly clear. Meanwhile, the best companies keep growing. You miss years of compounding.
|
||||
|
||||
### Mistake 2: Thinking a High P/E Means Overpriced
|
||||
|
||||
A company that has consistently traded at 2× the market P/E for 30 years and continues to deliver is NOT overpriced relative to its own history. The error is comparing its P/E to average stocks rather than asking: "Given its future growth rate, what P/E will it command in 5 years?"
|
||||
|
||||
If a great company typically commands 25–30× earnings, and earnings are expected to double in 5 years, the stock may be no more "expensive" today than 5 years ago — it's just discounting the same premium for ongoing excellence.
|
||||
|
||||
### Mistake 3: The "Hasn't Gone Up Yet" Trap
|
||||
|
||||
Many investors choose stock B (which "hasn't gone up yet") over stock A (which has already risen significantly). This is backwards. Past price rise has no predictive value. What matters is future earnings power. A 600% gainer that continues growing is a better buy than a flat stock with mediocre prospects.
|
||||
|
||||
### Mistake 4: Overweighting Historical Price Ranges
|
||||
|
||||
"The stock used to sell at $35. It's at $60 now — too expensive." Past price ranges are largely meaningless. What matters is whether the business is more or less valuable *today* relative to other opportunities. A company that has added brilliant management, new product lines, and superior research may be worth 4× more today than three years ago. Historical prices don't tell you this.
|
||||
|
||||
### Mistake 5: Fixating on Historical EPS
|
||||
|
||||
Past EPS has almost no significance for future investment returns. What matters is the *next* 5 years of earnings. Companies in transition (improving management, new products ramping) may have lackluster past EPS but explosive future potential — exactly when Fisher wants to buy.
|
||||
|
||||
---
|
||||
|
||||
## WHEN TO SELL
|
||||
|
||||
Fisher's most important selling rule: **If the job was correctly done when buying, the time to sell is almost never.**
|
||||
|
||||
But "almost never" has three specific exceptions:
|
||||
|
||||
### Valid Reason 1: You Made a Mistake at Purchase
|
||||
|
||||
If you bought a stock that — on honest reflection — never fully qualified under the 15 Points, sell it. Even at a loss. Even at a small profit.
|
||||
|
||||
Why: "More money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason."
|
||||
|
||||
The psychology: Ego makes us not want to admit mistakes. But the difference between a 20% loss and a 5% gain on a bad holding is trivial compared to the compounding gain you miss by not redeploying into a good holding. Sell quickly; redeploy quickly.
|
||||
|
||||
**After any loss**: Review it carefully to understand exactly what was misjudged. Each loss is a lesson that prevents the same mistake in the future.
|
||||
|
||||
### Valid Reason 2: The Company Has Deteriorated
|
||||
|
||||
If a company once fully qualified on the 15 Points but no longer does — sell immediately.
|
||||
|
||||
**The two main ways companies deteriorate:**
|
||||
1. **Management deterioration**: Success breeds complacency; or new executives don't maintain the standards of their predecessors. "Smugness, complacency, or inertia replace the former drive and ingenuity."
|
||||
2. **Market exhaustion**: The company has fully captured its market and will now only grow at the rate of the general economy. No new products in the pipeline.
|
||||
|
||||
**Test for market exhaustion**: Will per-share earnings at the *next* business cycle peak be meaningfully higher than the current peak? If yes, hold. If no, it's time to sell.
|
||||
|
||||
**On management deterioration**: "When any of these things happen the affected stock should be sold at once, regardless of how good the general market may look or how big the capital gains tax may be."
|
||||
|
||||
**On tax considerations**: Fisher is emphatic — capital gains taxes should almost *never* be the reason to hold a deteriorating company. The tax cost of switching is minor compared to years of compounding in a better company.
|
||||
|
||||
### Valid Reason 3: You Found a Clearly Better Opportunity
|
||||
|
||||
If you find another company that is demonstrably more attractive than one you hold — with confidence in your analysis — it may be worth switching even after paying capital gains tax.
|
||||
|
||||
**Key caution**: Be very sure. You know your current holding well; you're less familiar with the new one. Unknown risks in the new situation can eliminate the apparent advantage.
|
||||
|
||||
**Fisher's standard**: The new opportunity should be clearly superior — not just marginally better. A company growing at 20% per year vs. one at 12% per year, over a decade, justifies the switch. But the case must be clear-cut.
|
||||
|
||||
---
|
||||
|
||||
## WHAT IS NOT A VALID REASON TO SELL
|
||||
|
||||
### "The Market Looks Expensive / A Correction is Coming"
|
||||
|
||||
If you couldn't reliably predict the top, you won't reliably call the bottom to buy back in. Fisher's evidence: He has seen investors dispose of outstanding holdings repeatedly due to bear market fears. In most cases: (a) the bear market never came, or (b) they failed to buy back before the stock rose above their selling price.
|
||||
|
||||
"I have not seen one time in ten when the investor actually got back into the same shares before they had gone up above his selling price."
|
||||
|
||||
### "The Stock Has Gone Up A Lot"
|
||||
|
||||
Outstanding companies don't have a built-in ceiling. A company that has delivered 500% gains and continues to grow its earnings through new products is a *better* investment than when you bought it, not a worse one. Selling just because the stock has risen is selling the company's future for a guaranteed exit.
|
||||
|
||||
Fisher's analogy: It's like selling your contract with a college classmate who is rapidly becoming a highly paid executive, just because someone offers you 600% of your original investment. Why would you give up the ongoing right to a quarter of his earnings just because you've already made a big gain?
|
||||
|
||||
### "The Stock is Overpriced Based on Current Earnings"
|
||||
|
||||
See "Mistake 2" in the buying section. Outstanding companies command premium P/Es indefinitely. 35× earnings for a company that will double earnings in 5 years may not be overpriced at all. Momentarily getting 35% ahead of fair value is irrelevant when the company will compound for another decade.
|
||||
|
||||
---
|
||||
|
||||
## SUMMARY: THE SELLING DISCIPLINE
|
||||
|
||||
| Situation | Action |
|
||||
|-----------|--------|
|
||||
| Bought in error — never fully qualified | Sell immediately, take the loss |
|
||||
| Management has deteriorated | Sell immediately |
|
||||
| Growth market exhausted, no next wave | Sell (can be gradual) |
|
||||
| Found clearly superior opportunity | Consider selling (be very certain) |
|
||||
| General market looks expensive | Do NOT sell |
|
||||
| Stock has risen a lot | Do NOT sell (if business is still excellent) |
|
||||
| Short-term earnings dip from temporary trouble | Do NOT sell |
|
||||
| War scare or market panic | Do NOT sell (consider buying more) |
|
||||
| Large capital gains tax would result | Irrelevant to the sell decision |
|
||||
|
|
@ -0,0 +1,128 @@
|
|||
---
|
||||
name: fisher-investing
|
||||
description: >
|
||||
Apply Philip Fisher growth stock investing methodology from Common Stocks and Uncommon Profits.
|
||||
Use this skill whenever a user asks about evaluating whether a company is a growth stock,
|
||||
analyzing a company investment quality, when to buy or sell a stock, how to research a company
|
||||
using the scuttlebutt method, diversification strategy, or any question involving long-term
|
||||
growth investing. Trigger on phrases like is X a growth stock, should I buy or sell X,
|
||||
analyze X using Fisher, evaluate X as an investment, growth stock criteria, scuttlebutt research,
|
||||
or any company analysis request. Always use this skill for stock evaluation questions.
|
||||
---
|
||||
|
||||
# Philip Fisher Growth Stock Investing Framework
|
||||
|
||||
This skill encodes the complete methodology from Philip Fisher's *Common Stocks and Uncommon Profits* (1958, revised 1960). Fisher is one of history's greatest investors — Warren Buffett credits him as a major influence alongside Benjamin Graham.
|
||||
|
||||
**Core Philosophy**: Buy exceptional companies at reasonable prices and hold them almost forever. The goal is gains of several hundred percent over years, not small short-term profits. Most great gains come from a very small number of outstanding companies — finding them requires deep research, not superficial statistics.
|
||||
|
||||
---
|
||||
|
||||
## HOW TO USE THIS SKILL
|
||||
|
||||
When the user asks about a company or stock:
|
||||
1. **Identify the question type** (see routing below)
|
||||
2. **Load the relevant reference file** for detailed criteria
|
||||
3. **Apply Fisher's framework systematically**
|
||||
4. **Give a structured verdict** with reasoning
|
||||
|
||||
**Question routing:**
|
||||
- "Is X a growth stock?" or "Evaluate X" → Apply **The 15 Points** (see `references/fifteen-points.md`)
|
||||
- "How do I research X?" → Apply **Scuttlebutt Method** (see `references/scuttlebutt.md`)
|
||||
- "When should I buy X?" → Apply **Buying Timing** (see `references/when-to-buy-sell.md`)
|
||||
- "Should I sell X?" → Apply **Selling Rules** (see `references/when-to-buy-sell.md`)
|
||||
- "How many stocks should I own?" → Apply **Diversification** (see `references/donts.md`)
|
||||
- General pitfalls / mistakes → Apply **Don'ts** (see `references/donts.md`)
|
||||
|
||||
---
|
||||
|
||||
## QUICK FRAMEWORK SUMMARY
|
||||
|
||||
### What Makes a True Growth Stock (The Core Test)
|
||||
|
||||
A true Fisher growth stock must score well on most of the 15 Points. There are two essential categories — **no exceptions**:
|
||||
|
||||
**Category A — Business Quality (Must be present):**
|
||||
- Large, expandable market for its products (not a one-time surge)
|
||||
- Determined R&D pipeline for future growth after current products mature
|
||||
- Above-average profit margins, OR deliberately thin margins to fuel faster growth
|
||||
- Outstanding sales organization (production + research are useless without sales)
|
||||
- Active program to maintain/improve profit margins (not just price increases)
|
||||
|
||||
**Category B — Management Quality (Must be present):**
|
||||
- Unquestionable integrity — this is the one non-negotiable point. If integrity is in doubt, never invest regardless of other scores.
|
||||
- Long-range outlook on profits (not maximizing current quarter)
|
||||
- Openly communicates with investors in bad times as well as good
|
||||
- Depth of management — not dependent on one key person
|
||||
- Good labor AND executive relations
|
||||
|
||||
**Category C — Financial Health (Important but more flexible):**
|
||||
- Equity financing plans, if needed, won't severely dilute existing shareholders
|
||||
- Effective cost analysis and accounting controls
|
||||
- Industry-specific factors considered
|
||||
|
||||
### Two Types of Great Growth Companies
|
||||
|
||||
Fisher identified two archetypes — both can be outstanding investments:
|
||||
- **"Fortunate and Able"**: Companies in great industries that grew even bigger than founders imagined (e.g., Alcoa in aluminum)
|
||||
- **"Fortunate Because They Are Able"**: Companies that *created* their own luck through brilliant management (e.g., Du Pont — started making blasting powder, built an empire through skill and research)
|
||||
|
||||
The key insight: **Management quality is the common denominator.** No company grows for decades on luck alone.
|
||||
|
||||
---
|
||||
|
||||
## SCORING & VERDICT FRAMEWORK
|
||||
|
||||
When evaluating a company, score each of the 15 Points as:
|
||||
- ✅ **Strong** — clearly qualifies
|
||||
- ⚠️ **Adequate** — passes but with reservations
|
||||
- ❌ **Weak** — fails to qualify
|
||||
- ❓ **Unknown** — requires scuttlebutt research to determine
|
||||
|
||||
**Verdict guide:**
|
||||
- 13–15 ✅ → **Outstanding growth stock candidate** — investigate deeply
|
||||
- 10–12 ✅ with no ❌ on integrity/management → **Solid candidate** — worth further research
|
||||
- Any ❌ on integrity → **Reject immediately** — no exceptions
|
||||
- Multiple ❌ on management points → **Not a Fisher growth stock**
|
||||
- Strong on business but weak on management → **Dangerous — avoid**
|
||||
|
||||
---
|
||||
|
||||
## KEY PRINCIPLES TO APPLY IN EVERY ANALYSIS
|
||||
|
||||
1. **Qualitative over quantitative**: The most important factors (management integrity, R&D effectiveness, sales culture) cannot be captured by ratios. Numbers are a starting point, not a conclusion.
|
||||
|
||||
2. **Future matters, not past**: Past EPS and historical price ranges are nearly meaningless. What matters is what earnings will be in 3–5 years and whether the business will still be exceptional then.
|
||||
|
||||
3. **P/E ratio nuance**: A consistently exceptional company *should* trade at a premium P/E. A stock trading at 2× the market P/E that has done so for 30 years is NOT overpriced if it continues to deliver. Do not reject a great company just because it looks "expensive" on simple metrics.
|
||||
|
||||
4. **Market timing is futile**: Do not wait for economic forecasts to "clear up" before buying. Nobody can reliably predict business cycles. A better approach: buy great companies during temporary troubles they will overcome.
|
||||
|
||||
5. **Scuttlebutt before management**: Never approach management first. Build your picture from customers, competitors, suppliers, and ex-employees first. Only visit management when you already have ~50% of what you need to know.
|
||||
|
||||
---
|
||||
|
||||
## WHEN TO READ THE REFERENCE FILES
|
||||
|
||||
- For a **full company evaluation**: read `references/fifteen-points.md` — contains all 15 criteria with detailed application guidance
|
||||
- For **how to research a company**: read `references/scuttlebutt.md` — Fisher's intelligence-gathering methodology
|
||||
- For **buy/sell timing**: read `references/when-to-buy-sell.md` — specific entry and exit rules
|
||||
- For **portfolio construction or investor mistakes**: read `references/donts.md` — 10 common errors and diversification rules
|
||||
|
||||
---
|
||||
|
||||
## EXAMPLE ANALYSIS STRUCTURE
|
||||
|
||||
When asked "Is [Company X] a growth stock?", structure your response as:
|
||||
|
||||
**Fisher Growth Stock Analysis: [Company X]**
|
||||
|
||||
1. **Business Overview** (what it does, industry dynamics)
|
||||
2. **15-Point Assessment** (score each point based on available information)
|
||||
3. **Key Strengths** (what clearly qualifies)
|
||||
4. **Key Concerns** (what is weak or unknown)
|
||||
5. **Scuttlebutt Gaps** (what needs further research to determine)
|
||||
6. **Verdict** (Outstanding / Solid Candidate / Not a Fisher Stock / Insufficient Data)
|
||||
7. **If buying**: Timing considerations from `references/when-to-buy-sell.md`
|
||||
|
||||
Always note what information is unknown and requires scuttlebutt research. Fisher himself says he cannot make a confident judgment without that research — neither should we.
|
||||
Loading…
Reference in New Issue