Thursday 30 September 2010

Standing on the Shoulders of a Growth Giant: Philip Fisher

Standing on the Shoulders of a Growth Giant: Phil Fisher

November 17, 2009

Sir Isaac Newton
Sir Isaac Newton

It was English physicist, astronomer, philosopher, and mathematician Sir Isaac Newton who in 1675 stated, “If I have seen further it is by standing on the shoulders of giants.” Investors too can stand on the shoulders of market giants by studying the timeless financial knowledge from current and past market legends. The press, all too often, focuses on the hot managers of our time while forgetting or kicking to the curb those forgotten or temporarily out of favor. Famous and enduring value managers typically have gained the press spotlight, rightfully so in the case of current greats like Warren Buffett or past talents like Benjamin Graham, because they managed to prosper through numerous economic cycles. However, when it comes to growth legends like Phil Fisher, author of the must-read classic Common Stocks and Uncommon Profits, many people I bump into have never heard of him. Hopefully that will change over time.

The Past
Born on September 8, 1907, Mr. Fisher lived until the ripe age of 96 when he passed on March 4, 2004. Fisher was no dummy – he enrolled in college at age 15 and started graduate school at Stanford a few years later, before he dropped out and started his own investment firm in 1931. His son, Ken, currently heads his own investment firm, Fisher Investments, writes for Forbes magazine, and has authored multiple investment books. Unlike his dad, Ken has more of a natural bent towards value stocks.

Buy-And-Hold

Philip A. Fisher

Phil Fisher’s iconic book, Common Stocks and Uncommon Profits, was published in 1958. Mr. Fisher believed in many things and perhaps would have been thrown under the bus today for his long-term convictions in “buy-and-hold.”  Or as Mr. Fisher put it, “If the job has been correctly done when a common stock is purchased, the time to sell it is – almost never.” Not every investment idea made the cut, however he is known to have bought Motorola (MOT) stock in 1955 and held it until his death in 2004 for a massive gain. Generally, he gave initial stock purchases a three-year leash before considering a change to his investment position. If the conviction to purchase a stock for such duration is not present, then the investment opportunity should be ignored.

Fisher’s concentration on growth stocks also shaped his view on dividends. Dividends were not important to Fisher – he was more focused on how the company is investing retained earnings to achieve its earnings growth. Like Fisher, Peter Lynch is another growth hero of mine that also felt there is too much focus on the Price/Earnings (PE) ratio rather than the long-term earnings potential. 

“Scuttlebutt”
Another classic trademark of Fisher’s investing style was his commitment to fundamental research. He was focused on accumulating data covering a broad range of areas including, customers, suppliers, and competitors. Fisher also emphasized factors like market share, return on invested capital, margins, and the research & development budget. What Mr. Fisher called his varied approach to gathering diverse sets of information was “scuttlebutt”.

Buying & Selling Points
Although Fisher believed firmly in buy and hold, he was not scared to sell when the firm no longer met the original buying criteria or his original assessment  for purchased was deemed incorrect.

When buying, Fisher preferred to buy stocks in downturns or temporary problems – contrary to your typical momentum growth manager today (read article on momentum).  Fisher has this to say on the topic: “This matter of training oneself to not go with the crowd but to be able to zig  when the crowd zags, in my opinion, is one of the most important fundamentals of the investment success.”

Learning from Mistakes
Like all great investors I have studied, Phil Fisher also believed in learning from your mistakes:
“I have always believed that the chief difference between a fool and a wise man is that the wise man learns from his mistakes, while the fool never does.”
He expanded on the topic by saying the following:
“Making mistakes is inherent cost of investing just like bad loans are for the finest lending institutions. Don’t blindly accept dominant opinion and don’t be contrary for the sake of being contrary.”
I could only dream of having a fraction of Mr. Fisher’s career success – he retired in 1999 at the age of 91 (not bad timing).  As I continue on my investment journey with my investment firm (Sidoxia Capital Management, LLC), I will continue to study the legendary giants of investing (past and present) to sharpen my investment skills.

Wade W. Slome, CFA, CFP®

http://investingcaffeine.com/2009/11/17/standing-on-the-shoulders-of-a-growth-giant-phil-fisher/

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