Super Investor #10 in our series is Philip Fisher – The Father of Growth Investing.
Who is Philip Fisher?
Philip Fisher was one of the earliest champions of growth investing, paving the way for a revolutionary approach that values the quality of a company and its management over its stock price. Best known for his influential book, Common Stocks and Uncommon Profits, Fisher emphasized in-depth, qualitative research as the foundation for identifying companies with strong growth potential. His investment philosophy is built around seeking well-managed companies with a sustainable competitive advantage, a mindset that has influenced legendary investors like Warren Buffett and continues to shape modern investing.
Early Life and Background
Fisher’s journey to becoming an investment icon began in 1907 in San Francisco. After studying economics at Stanford University, he ventured into the investment world, establishing Fisher & Company, his own investment firm, in 1931. During a career that spanned more than seven decades, Fisher developed his unique investment style, influenced by his commitment to understanding businesses deeply. His desire to “know what he owns” led him to pioneer the use of qualitative research, setting the stage for his distinctive scuttlebutt approach.
Investment Philosophy: How Philip Fisher Approaches the Market
Core Principles: The 15-Point Checklist
At the heart of Fisher’s philosophy is his famous 15-point checklist, which encompasses both the quantitative and qualitative aspects of a company. This checklist includes elements like a company’s management quality, employee satisfaction, R&D commitments, and profitability. Here’s a breakdown of some of Fisher’s most impactful points:
- Management Integrity and Competency: Fisher believed that ethical and competent leadership is key to a company’s success. He would only invest in companies with a strong, honest, and capable management team.
- Commitment to Research and Development: Fisher valued companies that reinvested in innovation, recognizing that robust R&D spending signaled growth potential.
- Profit Margins and Growth of Sales: He examined whether a company’s profit margins were strong and likely to expand, reflecting its competitive edge.
This checklist serves as a guide for investors seeking companies with enduring quality and growth potential. Today, companies like Apple (AAPL), with its innovation-driven product lineup and customer loyalty, and Amazon (AMZN), with its focus on customer-centric R&D, exemplify the type of business Fisher would likely have appreciated.
The Scuttlebutt Approach: Qualitative Research Through Investigation
Philip Fisher’s “scuttlebutt” method is one of his most distinctive contributions to investment strategy. This approach entails gathering insights from a company’s ecosystem, including suppliers, customers, employees, and even competitors. The goal is to build a nuanced understanding of the company beyond its financial statements. This deep dive often reveals insights into a company’s market position and internal culture that are invisible to quantitative analysis alone.
- Example Application: For a modern investor, investigating Tesla (TSLA) could involve researching customer reviews, monitoring innovations in electric vehicles, and following industry developments to assess its competitive position.
Long-Term Vision and Patience
Fisher believed that once you’ve identified a high-quality company, you should hold onto it for the long term. This patience aligns with the idea that a well-managed company will continue to grow, compounding returns over decades. His “buy and hold” philosophy resonates today, encouraging investors to avoid selling prematurely and to think in decades, not quarters.
Track Record: The Wins (and Losses) that Defined Philip Fisher
While Fisher was a private investor and did not manage a public fund, his track record was characterized by a handful of transformative investments. He was known for investing early in companies with breakthrough growth potential, focusing on innovative industries like semiconductors and technology. One of his most famous investments was in Motorola, which he identified as a high-potential company well before it became a tech giant. His stake in Motorola paid off significantly, highlighting the power of a growth-focused, long-term investment philosophy.
Key Wins and a Balanced Approach to Losses
Though detailed public records of Fisher’s investment portfolio are limited, his ability to identify industry leaders early on helped him build a reputation as a visionary. However, Fisher also acknowledged the importance of learning from his mistakes, emphasizing the need to continually improve one’s investment strategy. This balanced approach underscores the value of humility and adaptability, even for seasoned investors.
Lessons for the Everyday Investor
Fisher’s growth-oriented approach offers actionable insights for individual investors:
- Understand the Business Thoroughly: Before investing, take time to truly understand the business model, competitive landscape, and industry outlook. Fisher’s scuttlebutt method is a powerful reminder of the importance of digging deep and gathering diverse perspectives.
- Practical Application: Read earnings call transcripts, consult customer reviews, or explore online resources like Glassdoor to understand employee sentiment. This research provides a fuller picture of the company’s internal culture and market standing.
- Prioritize Quality and Management Integrity: Focus on companies with strong, ethical leadership and high-quality products or services. Management plays a vital role in a company’s growth potential and longevity, so it’s essential to evaluate their track record and vision.
- Example Companies: Look for stable and well-regarded companies like Johnson & Johnson (JNJ) and Procter & Gamble (PG), which have long histories of ethical leadership and customer trust.
- Invest with a Long-Term Horizon: Fisher advocated for a patient, long-term approach to investing. Embrace volatility and hold quality companies over time to benefit from compounding growth.
- Practical Application: Set up alerts to follow company announcements or industry news instead of checking daily stock prices. This can reduce emotional investing and keep you focused on long-term performance.
Overcoming Challenges and Criticism
Fisher faced his share of challenges, notably the criticism that his methods were labor-intensive and sometimes subjective. Critics argued that his scuttlebutt approach could lead to bias, as it often relied on anecdotal evidence. Fisher responded by emphasizing that the method, while intensive, could be exceptionally rewarding for those willing to invest the time. Moreover, he adjusted his checklist over time, underscoring the importance of evolution in one’s investing approach.
The Legacy of Philip Fisher
Philip Fisher’s influence on investing is vast, inspiring a new generation of investors who prioritize growth, innovation, and management quality. Perhaps one of his most influential admirers is Warren Buffett, who adopted parts of Fisher’s strategy into his own value-oriented philosophy. By combining elements of value investing with Fisher’s growth approach, Buffett created a hybrid strategy that has since become a hallmark of modern investment success.
Fisher’s teachings continue to resonate in popular investment books and courses. Common Stocks and Uncommon Profits remains a classic, widely regarded as essential reading for anyone interested in growth investing.
Timeless Quotes and Wisdom from Philip Fisher
Fisher left behind many memorable quotes that encapsulate his investment wisdom. Here are a few of his best-known insights:
- “The stock market is filled with individuals who know the price of everything, but the value of nothing.”
- “Conservative investors sleep well.”
These quotes capture Fisher’s belief in focusing on value over price and the importance of investing in high-quality businesses.
Conclusion: The Enduring Influence of Philip Fisher
Philip Fisher’s disciplined approach, commitment to deep research, and focus on long-term growth have solidified his place among the world’s greatest investors. By prioritizing the quality of a company’s management and competitive advantage, Fisher taught investors to look beyond financial metrics and embrace a growth-oriented mindset. His teachings remain relevant today, especially in an age when high-quality companies can deliver substantial returns over time.
Fisher’s life and legacy offer valuable lessons that everyday investors can apply. By conducting thorough research, prioritizing quality, and maintaining a long-term perspective, you can adopt Fisher’s methods to make more informed investment decisions. Remember, successful investing requires discipline, patience, and a willingness to look beyond the obvious.
Happy Investing!