Philip Fisher: 6 lessons on investing to keep in mind
Philip Fisher was a highly respected figure in the investment world who continues to influence generations today. Simply put, his philosophy emphasised the importance of looking beyond the numbers and understanding the true value of the companies in which you invest. But there is much more to his approach than meets the eye. Find out who he was, how he invested and how you can apply some of his lessons to your own investment decisions.
Who was Philip Fisher?
Philip Fisher was born in the US in 1907 and is credited with pioneering growth investing. After graduating in economics from Stanford University, he began his career as an analyst at the Anglo-London Bank.
In 1931, during the troubled years of the Depression, he founded Fisher&Co. and developed and refined his unique investment philosophy, influencing the likes of Warren Buffett. Na década de 50, publicou o livro Common Stocks and Uncommon Profits, which became a must-read for investors. In this book, he stresses the importance of being run by competent managers, but recommends that investors focus their capital on market-leading companies that are committed to development and innovation.
Fisher died in 2004, aged 96 after a life dedicated to numbers. But his legacy lives on, and his enormous contribution to the investment world is widely recognised.
Investing like Philip Fisher: 6 useful lessons
Like other iconic figures in financial markets, Philip Fisher had a unique approach for his time. Here are some key lessons to remember.
1. For a more comprehensive analysis, use the "scuttlebutt” method
Philip Fisher popularised "scuttlebutt”, referring to informal conversations and rumours, as a way of gathering valuable information about companies. He believed that analysing annual reports and accounts was not enough to truly understand a company and where it was going.
At a time when there was no such thing as social networking or online reviews, Fisher encouraged investors to look beyond the numbers and consider qualitative data from a variety of sources, such as customers, competitors, suppliers and former employees. These perspectives can provide a unique and unbiased insight into a company’s internal culture and quality of its management.
What to do:
• Gain insight into product quality, customer service, company reputation and capacity for future growth by talking to customers and consulting online forums or social networks;
• Where possible, seek input from suppliers who can help understand how the company operates and its competitive position;
• Talk to industry experts to get a broader view of industry trends and how the business fits into that vision.
2. Invest in companies with barriers to entry
Fisher looked for companies with solid plans and unique barriers that made them less vulnerable to competition. When he invested in Motorola in 1955, the semicondutor and communications industries were in their infancy. But he saw a perfect opportunity to create long-term value through technological innovation.
Fisher held his shares in Motorola until 2004, closely following the company's strategy, its constant innovation and the successive advances in the industry. The investment returned 20 times Fisher's initial investment. It became a classic example of how to identify companies with innovative potential before they reach the mass market.
What to do:
• Look for companies that are committed to developing unique products and services that have the potential to strengthen growing markets;
• Identify companies with realistic and sustainable growth strategies and which are focused on long-term profitability;
• Review the leadership, the culture and the ability to motivate people to create value and lead the business.
3. Prioritising innovation
Fisher looked at specific financial metrics to identify companies with solid expansion potential. Naturally, he looked at revenue growth over a number of years, valuing it at a rate above inflation and at least in line with the market average.
He also looked for consistent and sufficient margins to maintain a "financial cushion” for reinvestment and expansion. Finally, he analysed investment in research and development (R&D) as a measure of the company's commitment to innovation. He then conducted a detailed study of the companies that met these three criteria.
What to do:
• Analyse the company’s revenue growth over the years and look for an acceleration in the rate of growth;
• Compare its profit margin with that of competitors and see if it is increasing or stable;
• Check the percentage of investment in R&D and select companies that support this investment;
• Avoid companies with a reduction in R&D expenditure that is disproportionate to sales, as this is a sign of an excessive focus on immediate profits.
4. Investing for the long term
Fisher argued that the true value of a share is the result of the passage of time, not of quick trades on the basis of market volatility. For the investor, a long-term approach involves a thorough evaluation of a company, such as the quality of its management, the consistency of its strategy and the generation of dividends. This provides a solid foundation for more sustainable returns.
Investors who adopt a buy-and-hold strategy are less exposed to emotional decisions that can affect long-term returns. However, investing for the long term does not mean ignoring the signs of change. Fisher warned against becoming irrationally attached to an asset with no initial growth potential. The key is to know when to adjust your strategy on the basis of deteriorating fundamentals rather than a temporary dip in the share price.
What to do:
• Assess the company beyond the numbers. Look at the quality of management, the culture and the consistency of strategy;
• Don’t make decisions based on short-term fluctuations in the share price;
• Follow company and sector updates to reassess your position if there is a significant change in the fundamentals that supported your original decision.
5. Learning from mistakes
Investing, by its very nature, involves making mistakes, which can be minimised with the help of experts in the field. Fisher stresses the importance of being able to recognise these mistakes quickly, identify the causes and learn how to avoid them in the future.
What to do:
• Use errors to thoroughly investigate the causes;
• Control losses by using related orders or by setting a level of capital loss that you feel comfortable with.
6. Focusing on quality investments
Além disso, Fisher recomendava manter uma carteira de dez a doze ações. In addition, Fisher recommended maintaining a portfolio of ten to twelve stocks. As you build your portfolio, you may want to consider gradually replacing stocks that you think are underperforming with stocks that have more potential.
What to do:
• Continue to invest and build on stocks that appear to have the potential to deliver;
• Invest in high quality companies at a time when prices are low;
• To manage your portfolio more effectively, limit the number of stocks to around ten to twelve.
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