LESSONS FROM PHILIP FISHER'S ARTICLE "FIFTEEN POINTS TO LOOK FOR IN A COMMON STOCK"
This guide provides a comprehensive checklist for evaluating potential investment opportunities in stocks. Here's a detailed explanation of each point:
1. Products with Potential:
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. Management's Commitment to Development:
Is the management determined 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. Effective R&D:
How effective are the company's research and development efforts in relation to its size?
4. Superior Sales Organization:
Does the company have an above-average sales organization?
5. Profit Margins:
Does the company have a worthwhile profit margin? What is the company doing to maintain or improve profit margins?
6. Labor and Personnel Relations:
Does the company have outstanding labor and personnel relations?
7. Executive Relations:
Does the company have outstanding executive relations?
8. Depth of Management:
Does the company have depth to its management?
9. Cost Analysis and Accounting Controls:
How good are the company's cost analysis and accounting controls?
10. Unique Industry Position:
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 will be in relation to its competition?
11. Outlook on Profits:
Does the company have a short-range or long-range outlook in regard to profits?
12. Equity Financing:
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?
13. Management Candidness:
Does the management talk freely to investors about its affairs when things are going well but "clam up" when troubles or disappointments occur?
14. Focus on Long-term Growth:
Does the company focus on long-term growth rather than short-term objectives?
15. Value of Stockholder Relations:
Does the company have a policy of building shareholder value and a history of good relations with its shareholders?
These points are designed to help investors identify companies that are not just good, but potentially great investment opportunities. They focus on qualitative factors such as management quality, growth potential, and competitive advantage, which are crucial for long-term success in the stock market.
It's important to note that while it's rare for a company to meet all fifteen points perfectly, the more points a company meets, the higher its potential for success. Conversely, if a company fails to meet the majority of these points, it may be a sign of caution for investors.
For a more in-depth understanding, I recommend reading Fisher's article, as it provides valuable insights into each of these points and how to apply them in practical investment analysis.
This guide provides a comprehensive checklist for evaluating potential investment opportunities in stocks. Here's a detailed explanation of each point:
1. Products with Potential:
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. Management's Commitment to Development:
Is the management determined 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. Effective R&D:
How effective are the company's research and development efforts in relation to its size?
4. Superior Sales Organization:
Does the company have an above-average sales organization?
5. Profit Margins:
Does the company have a worthwhile profit margin? What is the company doing to maintain or improve profit margins?
6. Labor and Personnel Relations:
Does the company have outstanding labor and personnel relations?
7. Executive Relations:
Does the company have outstanding executive relations?
8. Depth of Management:
Does the company have depth to its management?
9. Cost Analysis and Accounting Controls:
How good are the company's cost analysis and accounting controls?
10. Unique Industry Position:
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 will be in relation to its competition?
11. Outlook on Profits:
Does the company have a short-range or long-range outlook in regard to profits?
12. Equity Financing:
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?
13. Management Candidness:
Does the management talk freely to investors about its affairs when things are going well but "clam up" when troubles or disappointments occur?
14. Focus on Long-term Growth:
Does the company focus on long-term growth rather than short-term objectives?
15. Value of Stockholder Relations:
Does the company have a policy of building shareholder value and a history of good relations with its shareholders?
These points are designed to help investors identify companies that are not just good, but potentially great investment opportunities. They focus on qualitative factors such as management quality, growth potential, and competitive advantage, which are crucial for long-term success in the stock market.
It's important to note that while it's rare for a company to meet all fifteen points perfectly, the more points a company meets, the higher its potential for success. Conversely, if a company fails to meet the majority of these points, it may be a sign of caution for investors.
For a more in-depth understanding, I recommend reading Fisher's article, as it provides valuable insights into each of these points and how to apply them in practical investment analysis.