Philip Fisher: Quality first, Price second

•Philip Fisher:
Quality first, Price second

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•Fisher formulated a clear and sensible investing strategy (which I'll get to in a second), wrote one of the best investment books of all time, Common Stocks and Uncommon Profits, and made a good deal of money for himself and his clients.

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•His son wrote that Phil's best advice was 

•to "always think long term," 

•to "buy what you understand," and 

•to own "not too many stocks." 

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•Charles Munger, who is Buffett's partner, praised Fisher at the 1993 annual meeting of their company, Berkshire Hathaway Inc. (BRK/A): "Phil Fisher believed in concentrating in about 10 good investments and was happy with a limited number.

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•That is very much in our playbook.

•And he believed in knowing a lot about the things he did invest in.  And that's in our playbook, too.

•And the reason why it's in our playbook is that to some extent, we learned it from him."

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•In addition to the warning against over-diversification — or what Peter Lynch, the great Fidelity Magellan fund manager, calls "de-worse-ification" — the book makes three important points:

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•(1)  First, don't worry too much about price.  (Quality first, Price second)

•(2)  Second, Fisher says that investors must ask, "Does the company have a management of unquestionable integrity?" 

•(3)  Finally, Fisher offered the best advice ever on selling stocks. "It is only occasionally," he wrote, "that there is any reason for selling at all."

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•(1)  First, don't worry too much about price.  (Quality first, Price second)

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•(1)  First, don't worry too much about price.  (Quality first, Price second)

•"Even in these earlier times [he's talking here about 1913], finding the really outstanding companies and staying with them through all the fluctuations of a gyrating market proved far more profitable to far more people than did the more colorful practice of trying to buy them cheap and sell them dear.”

•(1)  First, don't worry too much about price.  (Quality first, Price second)

•In fretting about whether a stock is cheap or expensive, many investors miss out on owning great companies. 

•My own rule is: quality first, price second.

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•(2)  Second, Fisher says that investors must ask, "Does the company have a management of unquestionable integrity?" 

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•(3)  Finally, Fisher offered the best advice ever on selling stocks. "It is only occasionally," he wrote, "that there is any reason for selling at all."

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•Yes, but what are those occasions?

•They come down to this: Sell if a company has deteriorated in some important way.  

•And I don't mean price! 

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•Fisher's view, instead, is to look to the business — the company itself, not the stock. 

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•"When companies deteriorate, they usually do so for one of two reasons: 

•Either there has been a deterioration of management, or 

•the company no longer has the prospect of increasing the markets for its product in the way it formerly did."

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•A stock-price decline can be a key signal:  "Pay attention!  Something may be wrong!" 

•But the decline alone would not prompt me to sell.  

•Nor would a rise in price. 

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•Time to sell? 

•If you did, you missed another doubling.

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•"How long should you hold a stock? 

•As long as the good things that attracted you to the company are still there."

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