Saturday, July 16, 2011

Philip A. Fisher’s Stocks Selection Criteria - What to buy?

In his book, Common Stocks and Uncommon Profits, Philip A. Fisher listed down his 15 points on the criteria of selecting good stocks. These 15 points cover 4 areas on sales & growth, financial, management and leadership.

Area 1: Sales & growth
  1. Products and services that have market potential to increase and give sizable sales for few years (Point 1)
  2. Management determination in develop new products and services for growth and sales potential (Point 2)
  3. Effectiveness of research & development in relation to size (Point 3)
  4. An above average sales organization (Point 4)

Area 2: Financial
  1. A worthwhile profit margin (Point 5)
  2. Effort in maintaining or increasing profit margin (Point 6)
  3. Good cost analyses and accounting control (Point 10)
  4. Will new equity funding require from growth subsequently cancel the existing stockholders’ benefit from this anticipated growth? (Point 13)

Area 3: Management
  1. Outstanding labor and personnel relations (Point 7)
  2. Outstanding executive relations (good executive climate for team work) (Point 8)
  3. Development of proper management in depth. Delegation of authority to develop pool of talents (Point 9)

Area 4: Leadership: visions and characters
  1. Peculiarity of the company in winning the competition (Point 11)
  2. Management perspectives in regard to profits (short-range or long range) (Point 12)
  3. Management attitude in conveying troubles and disappointments. “Clam up”? (Point 14)
  4. Unquestionable integrity (Point 15)

In Part Two of the same book, Philip A Fisher wrote Conservative Investors Sleep Well reorganizing all the 15 points above and additional ideas into four dimensions, i.e. Superiority in business functions, People, Investment characteristics of some businesses and Pricing for investment.
Summary of Common Stocks and Uncommon Profits
by Philip A. Fisher
  1. What to buy? Stocks selection criteria
  2. When to buy, when to sell and when NOT to sell?
  3. Ten Don'ts for investors
  4. Further explanations: Dividend
  5. How to find growth stocks?