Things I’ve Learned from Philip Fisher

1. “I had made what I believe was one of
the more valuable decisions of my
business life. This was to confine all
efforts solely to making major gains in
the long-run…. There are two
fundamental approaches to investment.
There’s the approach Ben Graham
pioneered, which is to find something
intrinsically so cheap that there is little
chance of it having a big decline. He’s got
financial safeguards to that. It isn’t going
to go down much, and sooner or later
value will come into it. Then there is my
approach, which is to find something so
good–if you don’t pay too much for it–
that it will have very, very large growth.
The advantage is that a bigger
percentage of my stocks is apt to perform
in a smaller period of time–although it
has taken several years for some of these
to even start, and you’re bound to make
some mistakes at it. [But] when a stock is
really unusual, it makes the bulk of its
moves in a relatively short period of
time.” Phil Fisher understood (1) trying to
predict the direction of a market or stock
in the short-term is not a game where one
can have an advantage versus the house
(especially after fees); and (2) his
approach was different from Ben Graham.
2. “I don’t want a lot of good
investments; I want a few outstanding
ones…. I believe that the greatest long-
range investment profits are never
obtained by investing in marginal
companies.” Warren Buffett once said:
“I’m 15% Fisher and 85% Benjamin
Graham.” Warren Buffett is much more
like Fisher in 2013 than the 15% he once
specified, but only he knows how much. It
was the influence of Charlie Munger
which moved Buffet away from a
Benjamin Graham approach and their
investment in See’s Candy was an early
example in which Berkshire paid up for a
“quality” company. Part of the reason this
shift happened is that the sorts of
companies that Benjamin Graham liked no
longer existed the further way the time
period was from the depression.
3. “The wise investor can profit if he can
think independently of the crowd and
reach the rich answer when the majority
of financial opinion is leaning the other
way. This matter of training oneself not
to 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 investment success.” The inevitable
math is that you can’t beat the crowd if
you are the crowd, especially after fees
are deducted.
4. “Usually a very long list of securities is
not a sign of the brilliant investor, but of
one who is unsure of himself. … Investors
have been so oversold on diversification
that fear of having too many eggs in one
basket has caused them to put far too
little into companies they thoroughly
know and far too much in others which
they know nothing about .” For the “know-
something” active investor like Phil
Fisher, wide diversification is a form of
closet indexing. A “know-something”
active investor must focus on a relatively
small number of stocks if he or she
expects to outperform a market. By
contrast, “know-nothing” investors (i.e.,
muppets) should buy a low fee index
fund.
5. “If the job has been correctly done
when a common stock is purchased, the
time to sell it is almost never.” Phil
Fisher preferred a holding period of
almost forever (e.g., Fisher bought
Motorola in 1955 and held it until 2004).
The word “almost” is important since
every company is in danger of losing its
moat.
6. “Great stocks are extremely hard to
find. If they weren’t, then everyone would
own them. The record is crystal clear that
fortune – producing growth stocks can be
found. However, they cannot be found
without hard work and they cannot be
found every day.” Fisher believed that the
“fat pitch” investment opportunity is
delivered rarely and only to those
investors who are willing to patiently work
to find them.
7. “Focus on buying these companies
when they are out of favor, that is when,
either because of general market
conditions or because the financial
community at the moment has
misconceptions of its true worth, the
stock is selling at prices well under what
it will be when it’s true merit is better
understood.” Like Howard Marks, Fisher
believed that (1) business cycles and (2)
changes in Mr. Market’s attitude are
inevitable. By focusing on the value of
individual stocks (rather than just price)
the investor can best profit from these
inevitable swings.
8. “The successful investor is usually an
individual who is inherently interested in
business problems.” A stock is a part
ownership of a business. If you do not
understand the business you do not
understand that stock. If you do not
understand the business you are investing
in you are a speculator, not an investor.
9. “The stock market is filled with
individuals who know the price of
everything, but the value of nothing.”
Price is what you pay and value is what
you get. By focusing on value Fisher was
able to outperform as an investor even
though he did not look for cigar butts.
10. “It is not the profit margins of the
past but those of the future that are
basically important to the investor.” Too
often people believe that the best
prediction about the future is that it is an
extension of the recent past.
11. “There is a complicating factor that
makes the handling of investment
mistakes more difficult. This is the ego in
each of us. None of us likes to admit to
himself that he has been wrong. If we
have made a mistake in buying a stock
but can sell the stock at a small profit, we
have somehow lost any sense of having
been foolish. On the other hand, if we sell
at a small loss we are quite unhappy
about the whole matter. This reaction,
while completely natural and normal, is
probably one of the most dangerous in
which we can indulge ourselves in the
entire investment process. More money
has probably been lost by investors
holding a stock they really did not want
until they could ‘at least come out even’
than from any other single reason. If to
these actual losses are added the profits
that might have been made through the
proper reinvestment of these funds if
such reinvestment had been made when
the mistake was first realized, the cost of
self-indulgence becomes truly
tremendous.” Fisher was very aware of
the problems that loss aversion bias can
cause.
12. “Conservative investors sleep well.” If
you are having trouble sleeping due to
worrying about your portfolio, reducing
risk is wise. Life is too short to not sleep
well, but also fear can result in mistakes.