Saturday, July 16, 2011

Philip A. Fisher’s Stocks Strategies - When to buy? When to sell or not to sell?

In Common Stocks and Uncommon Profits, Philip Fisher provided guidelines on timing of buying and selling stocks. Once a company fits into the 15 points criteria of a good and growth stock, when should we start buying the stocks? When should we sell it?

When to buy a good stock?

The best time to buy a company’s shares is right before the improvement of its earning power and before its shares price reflects the anticipated earnings improvement.
  1. When the company’s commercial plant for a new processes is about to begin production. Initially, growth drains profit and other resources of the business. The point in the development of a new process that worth considering as buying time is that at which the first full-scale commercial plant is about to begin production. (Extra cost will incur, benefit of the new production has not crept into EPS. But eventually profit will come.) This criteria can only apply to the companies that fit the 15 points
  2. When the company Introduces new products
  3. When the company faces problems of starting complex plants. Such troubles are temporary rather than permanent
Alternatively, we can just buy into outstanding companies, though our patient will be tested.

Another important strategy is that we should buy the shares in staggered way. Spread the timing of buying to avoid losses caused by major economic storm.

When to sell?

There are only 3 reasons to sell
  1. When a mistake has been made in the original purchase
  2. The company has no longer qualified in regard to the fifteen points, either through deterioration or exhaustion of growth prospects
  3. Switch to a more attractive investment as our investment resources (money) are limited

When not to sell?
  1. General stock market movement, as the good companies that fit the 15 points may defy business cycle
  2. Overpriced, as you cannot know whether it is really overpriced. The companies that fit the 15 points have good growth prospects
  3. The price of the stock has a huge advance

Ultimately, "If the job has been correctly done when a common stock is purchased, the time to sell it is – almost never." – Philip A Fisher

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?