Philip Fisher, thought-leader in growth investing, developed his philosophy over decades, partly as a result of logical reasoning and partly from observing the successes and failures of others. However, the most powerful element was the painful method of learning from his own mistakes.
Through experience, Fisher realised that for an investment to be a good choice, the most important criterion was to spend time finding out about a company; talking to managers and other knowledgeable people about an industry or company.
This was what he termed ‘Scuttlebutt’. Scuttlebutt surrounded all the other qualities Fisher looked for in a company, reinforcing the facts available from reports and normal sources.
What he was looking for was a company that would be outstanding in its field, with all the qualities he had so admired in the Food Machinery Corporation – see newsletter dated 5 Jan 2022; a company that had the probability of spectacular earnings growth with efficient management throughout.
When he found such a company, an ‘investment bonanza’, he held onto the shares for at least three years, and often longer, believing investors should not be seeking quick returns or an easy way to fortune.
Having conducted thorough research and made use of Scuttlebutt, Fisher’s ideal company is one which performs exceptionally well in every single aspect of its business. These companies were generally in the technology industry, where failure is part and parcel of progress.
Less well-informed investors tend to sell when things go wrong and earnings are less than expected, thus depressing the price, and this gave Fisher a chance to pick up a bargain.
If the people running the company are exceptionally able, and the mistakes that have occurred are only transient, then the company still provides an excellent investment vehicle, and is a better choice than a company which never takes any pioneering risk.
This is Fisher’s name for research into a company, but not via the usual methods of reading reports. It is using the business grapevine, seeking the opinions of anybody and everybody associated with the company; employees, customers, suppliers, contractors, rivals, academics, trade association officers, industry observers, ex-employees etc.
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