Philip Fisher is often regarded as the pioneer of growth stock investing. His investment philosophies have greatly influenced modern thinking about stock investments, particularly the idea of investing in well-managed, high-quality growth companies.
THE GENESIS OF A GROWTH INVESTOR
Born in 1907, Fisher's investment career spanned over 70 years, witnessing the Great Depression, numerous market cycles and vast economic changes. Unlike many of his contemporaries who focused on value, Fisher was one of the first to look beyond tangible assets and consider a company's potential for future growth. He started his own investment firm in 1931, during the Great Depression, a testament to his confidence and long-term vision.
BACKGROUND AND CAREER
Fisher graduated from the Stanford Business School in 1928. He started his career in the securities business in 1929, a time of great turmoil in the stock market. However, it was Fisher's unique approach to investing that set him apart. He focused on qualitative factors, such as management's quality and expertise, the company's competitive advantage and research and development potential. His seminal work Common Stocks and Uncommon Profits, published in 1958, remains a cornerstone of investing literature and introduced investors to the concept of a company's ‘scuttlebutt’ - gathering information from various sources to get the true picture of a company's potential.
CORE INVESTMENT PRINCIPLES
Fisher's investment philosophy is built on several key tenets.
Investing in growth companies: Fisher sought companies with superior growth prospects, looking for innovative products or services that offered potential for long-term sales and earnings growth.
Quality of management: He placed a great deal of emphasis on the quality of a company's executives, considering their integrity, intelligence and dedication as vital to the company's success.
Competitive advantage: Fisher looked for companies with a ‘moat’ – a durable competitive advantage that protected them from competitors and would ensure long-term profitability.
Conservative capital structure: He preferred companies with a conservative amount of debt, which would allow them to survive and thrive in all market conditions.
Focus on research and development: Fisher valued companies that invested in their future through research and development, seeing this as a driver for future growth.
INVESTING LESSONS FROM PHILIP FISHER
Scuttlebutt technique: Fisher’s famous scuttlebutt approach involved gathering information from competitors, customers and suppliers to assess a company's investment potential. This direct research method provides a depth of understanding that purely quantitative analysis cannot.
Long-term growth over short-term gains: Fisher was a proponent of long-term investing. He believed in holding onto stocks for an extended period, allowing the company to execute its growth plans and generate substantial returns.
Quality over price: Fisher was not as price-conscious as his value investing peers. He believed in paying a fair price for a great company, rather than a great price for a fair company.
Management matters: Fisher taught that strong, visionary management is a key component of a great investment. He assessed management rigorously, looking for integrity, transparency and a clear strategic vision.
Innovation as a cornerstone: He placed significant emphasis on a company's commitment to innovation, believing that a constant pursuit of improvement was essential for long-term success.
Philip Fisher's legacy lies in his unique approach to investing, focusing on growth and the qualitative aspects of businesses. His work continues to influence investors who seek to understand not just the numbers, but the narratives and nuances of the companies they invest in. Fisher's principles underscore the importance of foresight, thorough research and the patience to let a good company become great.
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