Warren Buffett has called himself “85% Graham and 15% Fisher”. While the works of Graham are often cited, Fisher’s book “Common Stocks and Uncommon Profits” is not. Here follows a summary of this work by Philip Fisher, known as one of the greatest investors of all time.
In most of the letters Fisher receives, the public asks him how he goes about finding stocks that are worth investigation. As a result, in this the final chapter, Fisher discusses where his investment ideas come from.
Previously, Fisher used to believe that the best source for investment ideas came from his executive contacts. However, after doing a quick study, Fisher now realizes that only 1/5 of the ideas that he fully investigated and only 1/6 of his total investments came from this source. The rest of his ideas have mostly come from hearing about the investments of other investors whom Fisher respects. Very rarely will Fisher find ideas in the print media.
Once a company has been uncovered that is worth further investigation, Fisher applies the scuttlebutt method as discussed in Chapter 3. Fisher stresses that it is of the utmost importance to investigate the company in this manner before meeting with management. Since an investor will not get a useful reply, no matter how candid is the management, to the question “Is there anything else I should know about your company?”, the investor must know what questions to ask about the company’s weaknesses beforehand. Good managements will often speak candidly if the investor shows he has done his research and has judged the company well.
Fisher also argues that it is important to meet the key decision makers, but because the demands on the time of these people are so high, companies will only let investors who they feel are competent take up the time of these valued managers. Therefore, having done the research as per the previous paragraph, investors must approach management in a manner that makes them believe the investor is competent. An investor who shows up at the door unannounced, for example, is likely to meet a member of the investor relations department rather than a key decision maker. An introduction through the company’s commercial bank, investment bank, or important customers or suppliers is a great way for the investor to ensure he will meet the right people.
