Home Finance Philip Fisher: The Investing Principles of This Great Investor

Philip Fisher: The Investing Principles of This Great Investor

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It would not be wrong to say that Philip Fisher was one of the first influential people who promoted the concept of fundamental analysis of companies.

He also wrote a book called Common stock and abnormal profit Long ago in 1957. But the book is as relevant today as it was during its first publication.

The focus of this book was to teach people how to do business analysis for its ability to earn profits in the future.

He started his own company in the year 1931 in Fisher & Co. He continued to manage the firm for the next seven decades until 1999. In the year 2004, Philip Fisher died.

Today the person is known as the founder of ‘Development Investing’.

Philip Fisher’s Investment Theory

philip fisher investment theory

Above is a simple sentence that touches on almost all aspects of Philip Fisher’s investing style. It answers some basic questions that all of us investors think about when investing.

  1. Which shares to buy? Fisher believed in buying only K stock. Well Managed Companies Which has good potential for development in future.
  2. How many stocks to buy? Fisher a. believed in being concentrated portfolio Consisting of only a few stocks. One should avoid diversifying too much by buying random shares.
  3. Which investment strategy to follow? For Fisher, like all great investors, practicing long term investment Necessary. The best strategy is to buy stocks and hold them for a very long period.
  4. How to identify good stocks? To identify them, we first need to know about them. Stock Basics. But more importantly, we must understand the business thoroughly in which we are investing. how to do this? This can be done by mastering the art of fundamental analysis.

investment theory

Philip Fisher used to classify his companies into two types: large cap and small cap.

In 10-years’ time, good large-cap stocks can deliver returns of around 15-18% per annum. At this rate of growth, invested capital can grow five-fold in 10 years.

But to experience the benefits of multibagger stockFisher used to enter the dangerous zone of the small cap. These are truly growth stocks. let’s take one Examples.

Havells, in the year 2008, was a small-cap stock trading at Rs.15 levels. By the next decade, Havells entered the elite arena of large caps. Till this time its price was at Rs.600 level. It also issued bonus shares of 1:1 (June 2010) and a stock split of 5:1 (Year-2014).

Taking all these factors into account, Havells’ 10-year rate of return was 82% per year (between 2009 and 2019). This is a capital increase of 400 times in 10 years.

What does the above example say? Investors who can hold stocks for longer duration like 10 years should buy shares of good new companies.

Identifying Good Stocks in Philip Fishers Style

Fisher was always on the lookout for growth stocks. in his book, common stock and abnormal profit, He writes about some ways to identify good stocks to invest in. Here are Fischer’s fifteen stock screening Criteria:

#1. Products and Services

For a business, it all starts with what they have to offer to their customers. Unique products and services that meet the growing demand will automatically emerge as winners in the long run.

#2. Management’s drive to develop products and services

No product or service can be useful forever. So companies’ offerings must evolve over time. Top management must realize this and the team must continue to drive to continuously develop and innovate new and existing products.

#3. R&D Infrastructure

A company that wants to grow must do its own research and development. To do so, they should have a good infrastructure to practice R&D work.

#4. sales force

Most of the products and services in this world will not start selling automatically. There should be a sales team with a sales strategy. Also, in order to continue selling more and more offerings, there must be a master sales plan.

#5. profit margin

A company may sell millions of products, but if its profit margin is low, it will only report subordinates. net profits. Therefore, for a company, building a reasonably large profit margin is of paramount importance. The goal should be to improve the industry standard.

#6. profit-margin-growth focus

The profit margin of the past will determine today’s price. But the future price will be determined by the future profit and its margin. A company has to work tooth and nail to maintain its profit margin. More effort is needed to improve margins. Cost Reduction, pricing power There are two tools using which a company can control its margins.

#7. employee focus

There can be two criteria for evaluating a company’s focus on its employees. A team of satisfied employees can take a company a long way. Promotion and pay revision are two immediate things that come to mind which can provide employee satisfaction.

#8. Skill Development

A company that identifies talent and then prepares them for future leadership positions is always future ready. Hesitation to delegate responsibility to young managers is a sure-fire kind of recipe for self-inflicted stagnation.

#9. How is the company tracking its costs?

As we saw in #5 and #6 above, profit margin and margin growth are significant. One way to achieve higher margins is through cost control. The company can keep its cost under control by tracking all the payments. Normally, an ERP system would do this task. Booking all the expenses diligently in the ERP system will give a visualization. Top managers will know where the major cash flows are going, and so they can keep a check. A company with a strong ERP system will flourish.

#10. What is the success factor of the company?

All the new companies operate in their respective core areas/industries. To win in a field, a company must follow a success path (a winning strategy). The key is to identify and build on this success path. Companies that have got their ‘winning strategy’ in place will be more likely to grow rapidly in the times to come.

#1 11. Focus on long term profits

Some companies should also look at their quarterly figures. They are very concerned about how the market will react to their numbers. This hesitation makes them defensive, and such companies are often slow to grow. Why? Because they focus heavily on current operations while avoiding future growth plans (CAPEX). Conversely, companies that handle both current operations and CAPEX plans at the same time will always remain profitable.

#12. Does the company have cash or borrowing capacity?

It is easier for listed companies to raise funds through the equity route. Difference Between ‘Issued Capital’ and ‘Issued Capital’Authorized capital Equity triggers financing. The company sells its shares to raise funds. Such companies may increase their profits over time, but such profits are liquidated by an increase in outstanding shares. Credit-worthy companies will not have to raise funds through the equity route. They can borrow money from banks. Growth will be seen in terms of increase in shareholders of such companies. eps.

#13. How does a company report in trouble times?

It’s a natural first instinct to hide your mistakes and poor performance. But it is not legal for a listed company to hide facts from its shareholders. Good companies are transparent all the time. This can be estimated by reading the annual reports of companies. An annual report, which only boasts about its achievements, is a red flag.

#14. quality of management

A company run by excellent managers can become extraordinary. No matter how good the numbers, sales and profits are, but if not quality Manager, investors will eventually start avoiding its shares.

#15. Addressing Labor Complaints

There will come a time when the issues of the employees will increase. Reasons can be accidents, job loss, punitive action etc. How the company addresses these issues can make a big difference. It is necessary to resolve the grievances of workers at the earliest. A company cannot afford to fight these cases in the courts all the time.

last word

Philip Fisher was a forward-looking investor. People like Warren Buffett also take clues from his investing style. in his book, common stock and abnormal profit, Fisher talks about three common mistakes that we retail investors make when practicing investing:

  1. display of herd mentality: We often buy shares that everyone else is buying. The best strategy for long-term investors is to buy top stocks in the sector that are already damaged and battered. Such stocks may not revive soon, so buy and hold them for a very long time. Eventually, the capital will grow above average. The idea is that no sector will be in peril forever.
  2. more diversificationPeople who don’t know what they are buying keep on buying all kinds of stocks that come their way. This leads to over-diversification. is to build a more profitable strategy circle of potential And buy stocks within your limits. The idea is to buy shares of companies that we understand well.
  3. opportunity lost: There is hardly any major price correction to be seen in the shares of the outstanding companies. This can happen, but only due to external factors such as covidhandjob subprime mortgage crisis, etc. When such reforms happen, this opportunity should be grabbed at the earliest. At that point, we shouldn’t mind paying 1-2% extra to buy such shares.

Here are some lessons from Philip Fisher that can bring great benefits to us, retail investors. I thought of sharing it with my readers. I hope you like it.

Make a happy investment.

Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of knews.uk and knews.uk does not assume any responsibility or liability for the same.

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