Apr 27, 2009

Fisher’s Growth investing

In the investment world, value investing and growth investing seem to be perceived as opposites, but I often wonder why. I recently fell on a book by Philip Arthur Fisher, who is considered by many to be the father of growth investing and has been one of the two persons to have inspired famed investor Warren buffet, the other one being the father of value investing, Benjamin Graham. In the 1950’s he wrote a phenomenal book called Common Stocks and Uncommon Profits. The book was, and still is, a very comprehensive guide to the way he went at discovering companies in the stock market and how an individual investor could do the same. A rational investor will gain a lot by getting acquainted with his investment principles.

From what I understood, Phil Fisher wanted to “buy companies that had disciplined plans for achieving dramatic long-range profit growth and had inherent qualities making it difficult for newcomers to share in that growth”. This might seem pretty fuzzy as a concept but if we take a more precise look at what he meant, it comes clearer that the differences between value investing and growth investing, at their core, are not many.

I first understood where Warren Buffett got his tendency to keep companies that he liked for a long time, it is pure Fisher! There are only three reasons that would have caused Phil fisher to sell the stock of a company.
  1. There has been a fundamental change in its nature (e.g., big management changes),
  2. It has grown to a point where it no longer will be growing faster than the economy as a whole or,
  3. It is trading at a very high P/E ratio because of mass market speculation.

If I am not mistaken, those events usually take a while before happening, a lot more than a couple days, probably years. A good example of his habit not to sell is his position in Motorola; he bought common stock of the company in 1955 and kept it until his death in 2004. In my view, that is the closest to forever.

I also noticed that he was keen to keep his portfolio at no more than 20 companies, which is a lot less than the number of companies in the average mutual fund. I also noted the tint of a prudent contrarian investor in him, since he would never accept blindly whatever may be the dominant current opinion in the financial community. But he also notes that he did not reject the prevailing view just for the sake of being contrary.

His process might seem complicated and unclear, but that is only because his philosophy can’t be summarized on a single page. For those interested in acquiring his book, you will find the necessary details here. In my point of view, what is good for Warren Buffett is very likely good for me too.

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