Philip Fisher: Warren Buffett’s lesser-known mentor

After reading Mary Buffett’s excellent book on securities analysis, I summarized the major things that Warren Buffett seems to look for in a stock.  That book focused primarily on Buffett’s lessons learned from Benjamin Graham, but Buffett’s investment strategy was also influenced heavily by the lesser-known Philip Fisher.

I discovered Fisher in a biography of Buffett, in which Buffett is quoted as saying that Fisher informed his investment decisions.  The most noted of Fisher’s rubricks is the concept that investments should be held for the long-term, where, at the very least, you can benefit from the tax and transactional savings.  But Fisher was also known for selling stocks early when he thought the fundamentals had changed.

Unlike Graham (who relied heavily on quantitative analysis to pick stocks with a wide margin of safety between the underlying value of the security and their price), Fisher took a broader, more qualitative approach to picking great companies.  Below are the big lessons from Fisher’s philosophy, which are outlined in further detail in his book Common Stocks and Uncommon Profits:

15 Points to Look for in a Common Stock

  1. Does the company have products or services with sufficient market potential to make possible a sizeable increase in sales for at least several years?
  2. Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?
  3. How effective are the company’s research and development efforts in relation to its size?
  4. Does the company have an above-average sales organization?
  5. Does the company have a worthwhile profit margin?
  6. What is the company doing to maintain or improve profit margins?
  7. Does the company have outstanding labor and personnel relations?
  8. Does the company have outstanding executive relations?
  9. Does the company have depth to its management?
  10. How good are the company’s cost analysis and accounting controls?
  11. Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company will be in relation to its competition?
  12. Does the company have a short-range or long-range outlook in regard to profits?
  13. In the foreseeable future, will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders’ benefit from this anticipated growth?
  14. Does the management talk freely to investors about its affairs when things are going well but “clam up” when troubles or disappointments occur?
  15. Does the company have a management of unquestionable integrity?

Five Don’ts for Investors

  1. Don’t buy into promotional companies.
  2. Don’t ignore a good stock just because it is traded “over-the-counter.”
  3. Don’t buy a stock just because you like the “tone” of its annual report.
  4. Don’t assume that the high price at which a stock may be selling in relation to its earnings is necessarily an indication that further growth in those earnings has largely been already discounted in the price.
  5. Don’t quibble over eighths and quarters.

Although the key factor in Buffett’s success seems to be the almost childish glee he seems to get in reading and memorizing financial statements, it is clear from his sometimes baffling decisions that he

3 thoughts on “Philip Fisher: Warren Buffett’s lesser-known mentor”

  1. http://dividendsvalue.com/1924/the-best-dividend-stocks-in-the-world/

    The following is an aggregate list of 45 U.S. stocks which meet the criteria to be dividend “aristocrats” “achievers” & “champions”

    I. S&P 500 Dividend Aristocrats – s&p500 stocks that have increased dividends every year for at least 25 consecutive years. (dividendsvalue.com)

    II. US Broad Dividend Achievers™ Index – comprised of companies incorporated in the United States or its territories, trade on the NYSE, NASDAQ or AMEX, and have increased their annual regular dividend payments for the last ten or more consecutive years. In addition, Indxis requires that a stock’s average daily cash volume exceed $500,000 per day in the November and December prior to the annual reconstitution date on the last trading date in January. The Index is calculated using a modified market capitalization weighting methodology
    (indxis.com)

    III. The U.S. Dividend Champions – increased their dividend for at least 25 consecutive years, but, as explained below, the definition was broadened to include additional companies that had paid higher dividends without having increased the quarterly payout in every calendar year. DRIP also decided to follow companies that had increased their dividend for 20-24 straight years, since they are likely to join the 25-year “Champions” soon. (DRIPinvesting.org)

    3M Company MMM [Aristocrat] [Achiever] [Champion]
    Abbott Laboratories ABT [Aristocrat] [Achiever] [Champion]
    AFLAC Inc. AFL [Aristocrat] [Achiever] [Champion]
    Air ProductsChemicals APD[Aristocrat] [Achiever] [Champion]
    ArcherDanielsMidland ADM [Aristocrat] [Achiever] [Champion]
    Automatic Data Processing ADP[Aristocrat][Achiever] [Champion]
    BB&T Corporation BBT [Aristocrat] [Achiever] [Champion]
    Becton Dickinson and Co. BDX[Aristocrat] [Achiever] [Champion]
    Bemis Inc. BMS [Aristocrat] [Achiever] [Champion]
    C.R. Bard Inc. BCR [Aristocrat] [Achiever] [Champion]
    CenturyTel Inc. CTL [Aristocrat] [Achiever] [Champion]
    Chubb Corp. CB [Aristocrat] [Achiever] [Champion]
    Cincinnati Financial CINF[Aristocrat] [Achiever] [Champion]
    Clorox Company CLX [Aristocrat] [Achiever] [Champion]
    Coca Cola Co. KO [Aristocrat] [Achiever] [Champion]
    Consolidated Edison ED [Aristocrat] [Achiever] [Champion]
    Dover Corp. DOV [Aristocrat] [Achiever] [Champion]
    Emerson Electric EMR [Aristocrat] [Achiever] [Champion]
    Exxon Mobil Corp. XOM [Aristocrat] [Achiever] [Champion]
    Family Dollar Stores FDO [Aristocrat] [Achiever] [Champion]
    W. W. Grainger Inc.GWW [Aristocrat] [Achiever] [Champion]
    Integrys Energy Group TEG[Aristocrat] [Achiever] [Champion]
    Johnson & Johnson JNJ [Aristocrat] [Achiever] [Champion]
    Johnson Controls Inc. JCI[Aristocrat] [Achiever] [Champion]
    Kimberly Clark Corp. KMB [Aristocrat] [Achiever] [Champion]
    Leggett & Platt Inc. LEG [Aristocrat] [Achiever] [Champion]
    Eli Lilly & Co. LLY [Aristocrat] [Achiever] [Champion]
    Lowe’s Cos. Inc. LOW [Aristocrat] [Achiever] [Champion]
    McDonald’s Corp. MCD [Aristocrat] [Achiever] [Champion]
    McGraw Hill Cos. Inc. MHP[Aristocrat] [Achiever] [Champion]
    PepsiCo Inc. PEP [Aristocrat] [Achiever] [Champion]
    Pitney Bowes Inc. PBI [Aristocrat] [Achiever] [Champion]
    PPG Industries Inc. PPG [Aristocrat] [Achiever] [Champion]
    Procter & Gamble Co. PG [Aristocrat] [Achiever] [Champion]
    Questar Corp.. STR [Aristocrat] [Achiever] [Champion]
    Rohm & Haas ROH [Aristocrat] [Achiever] [Champion]
    Sherwin Williams Co. SHW [Aristocrat] [Achiever] [Champion]
    Sigma Aldrich SIAL [Aristocrat] [Achiever] [Champion]
    Stanley Works SWK [Aristocrat] [Achiever] [Champion]
    State Street Corp. STT [Aristocrat] [Achiever] [Champion]
    Supervalu Inc. SVU [Aristocrat] [Achiever] [Champion]
    Target Corp. TGT [Aristocrat] [Achiever] [Champion]
    V.F. Corp. VFC [Aristocrat] [Achiever] [Champion]
    Wal Mart Stores Inc. WMT [Aristocrat] [Achiever] [Champion]
    Walgreen Co. WAG [Aristocrat] [Achiever] [Champion]

  2. Thanks Andrew! I also saw a bunch of the above listed in a stock screen I ran last week (looking at strong fundamentals), and on valuecruncher.com. P&G, McDonalds, 3M, Coke, Pepsi and McGraw Hill, among others. I haven’t done a deep dive into their numbers yet, but perhaps it’s a good time to look at a few of these.

  3. http://www.thesunsfinancialdiary.com/investing/where-to-find-dividends-a-comparison-of-dividend-paying-etfs-and-stocks/

    How to Invest in Dividend-Paying Stocks?
    Since long-term qualified dividends are taxed at a much lower rate (at most 15%) than short-term capital gains and interest, it makes sense to add them to our portfolio, even outside the tax deferred accounts.

    To invest in companies that pay dividends, we can choose either to buy individual stocks, or purchase a mutual fund or ETF that invest in dividend-paying companies.

    ETF’s: Top 10 holdings among the widely held Div ETF’s show lots of overlap. For example, Vanguard High Dividend Yield Index ETF (VYM) and PowerShares Dividend Achievers (PFM) have 8 in common.

    Build your own div/gen portfolio:

    * Use stocks that are mostly used in the dividend-paying ETFs
    * Use stocks that have the highest dividend yield
    * Use stocks that pay the most dividends in dollar amount

    And the three lists are:

    10 mostly used dividend-paying stocks

    1. Altria Group (MO) — $3.44 (5.00%)
    2. Bank of America (BAC) — $2.24 (4.40%)
    3. Pfizer (PFE) — $1.16 (4.30%)
    4. Verizon Communications (VZ) — $1.62 (4.00%)
    5. Citigroup (C) — $2.16 (4.00%)
    6. AT&T (T) — $1.42 (3.60%)
    7. Chevron (CVX) — $2.32 (3.00%)
    8. General Electric (GE) — $1.12 (3.00%)
    9. JPMorgan Chase (JPM) — $1.52 (2.90%)
    10. Exxon Mobil (XOM) — $1.40 (1.70%)

    10 highest yield dividend-paying stocks

    1. MCG Capital (MCGC) — $1.76 (10.00%)
    2. Thornburg Mortgage (TMA) — $2.72 (10.00%)
    3. Vector group (VGR) — $1.60 (8.70%)
    4. Allied Capital (ALD) — $2.56 (8.60%)
    5. American Capital Strategi (ACAS) — $3.56 (7.50%)
    6. Lexington Corporate Properties Trust (LXP) — $1.50 (7.10%)
    7. American Financial Realty Trust (AFR) — $0.76 (7.00%)
    8. Istar Financial (SFI) — $3.30 (7.00%)
    9. Southern Copper (PCU) — $6.00 (7.00%)
    10. Corus Bankshares Inc. — $1.00 (6.10%)

    10 highest payout dividend-paying stocks

    1. Southern Copper (PCU) — $6.00 (7.00%)
    2. American Capital Strategi (ACAS) — $3.56 (7.50%)
    3. Altria Group, Inc. (MO) — $3.44 (5.00%)
    4. Istar Financial (SFI) — $3.30 (7.00%)
    5. Thornburg Mortgage (TMA) — $2.72 (10.00%)
    6. Integrys Energy Group (TGE) — $2.64 (4.40%)
    7. Comerica (CMA) — $2.56 (4.10%)
    8. PNC Financial Services Group (PNC) — $2.52 (3.30%)
    9. Embarq (EQ) — $2.50 (3.90%)
    10. Progress Energy (PGN) — $2.44 (4.70%)

    Demian – According to your Ben Graham value sniffing decoder ring, which of these are also sound & oversold?

    That’s a list I’d buy and hold

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