Phil Fisher Conservative Investing

Question 0

Conservative investing

Answer 0

Understand what a conservative investment consists of

Relating to specific investments: course of action in finding
Out if conservative investment vehicles are conservative
investments

Question 1

Conservative investment

Answer 1

Investment most likely to conserve purchasing power at minimum
Risk

Question 2

Conservative investment: low cost production (manufacturing)/operation (service industries)

Answer 2

Company for majority of its product lines must produce as

Cheaply as it’s competitors

Question 3

Recessions and low cost producers

Answer 3

High cost producers close down during recessions and low cost
Producers gain market share

Question 4

2 vital conditions being a low cost producer creates?

Answer 4

1 have sufficient leeway below break even point of most
Competition

2 greater than average profit margin enables a company to
Earn enough to internally finance it’s growth

Question 5

Conservative investing: Strong marketing

Answer 5

Company able to capture demand in the future though sales
And advertising

Requires strong management in this area

Question 6

3 things that will happen if management is poor at marketing

Answer 6

1 losing significant business

2 higher costs resulting in smaller profit

3 failure to maximize profits in product line

Question 7

Conservative investing: outstanding research and technical effort

Answer 7

Products continually developed that have significant customer
Demand

Research teams competent working alone and on a team
Marketing department can sell products right after development

Question 8

Conservative investing: financial skill

Answer 8

Companies know how much they make on each product sold,
Intimate knowledge on extent of costs, cost reduction

Skillful budgeting allows excellent company to detect early
Unfavorable influences that affect profit plan

Question 9

Financial skill: company’s capital investment

Answer 9

Company has superior business acumen to bring in the highest
Return on capital investment

Question 10

4 characteristics of the first dimension of conservative investment

Answer 10

1 low cost producer/operator
2 outstanding marketing ability
3 outstanding financial ability
4 managerial superiority in getting results from 
research/technological development

Question 11

Companies with the best investment merit, establishing job positions?

Why is this important?

Answer 11

Promote from within, newcomers at top management leave
After a couple of years

People within the company are more familiar with doing the
Peculiar things that get the job done

Question 12

A large company’s need to bring in a new chief executive from
Outside is…

Answer 12

A damning sign something is wrong with existing management

Question 13

What is a red flag in management compensation

Answer 13

When management is a one man team

Detected by the top Management salary is significantly higher
Than the second or third man,(if compensation goes down gradually
That’s good)

Question 14

What shows Management depth within large companies?

Answer 14

They have management training school programs

Company is unique in it’s management policies

Question 15

Worthy as being held as a long term investment: company must recognize world changes at fast rate

Answer 15

Decentralized managements that continually find ways to
Improve how company operates

Divisions in the same company productively compete

Question 16

Conscious and continuos effort to make every range or worker in company feel like it is a great place to work

Answer 16

This increases worker productivity and lowers costs outweighing
The cost of the policy

Question 17

The best companies allow their workers to feel 2 things, that lead to spectacular results

Answer 17

1 they are genuinely participating in decisions, not just being
Told what to do

2 being rewarded both financially and with honors/recognition

Question 18

Management must be willing to submit itself to the disciplines required for sound growth

Answer 18

True growth oriented can not bring every possible cent to the
Bottom line to show profit in an accounting period

It’s focus must be to earn sufficient current profits to finance
Costs of expanding business

Question 19

What actions can management take to show it is oriented to sound growth?

Answer 19

Develop new products/product lines, training new personnel

To grow business to maintain customer loyalty

Question 20

Why is above average profitability important to the investor?

Answer 20

As a source of further gain and protection for what investor

Already has

Question 21

Profitability during inflationary periods

Answer 21

Profitability becomes more important during inflationary periods

Question 22

2 ways to measure profitability

Answer 22

1 return on invested assets

2 profit margins per dollar of sales

Question 23

Return on invested assets

Answer 23

Yardstick for management

Helps decide which product or process to go with based on
Past returns

Question 24

One thing to keep in mind when comparing profit margins per dollar of sales

Answer 24

Companies that high rate of sales in relation to assets may be
A more profitable company

compared to 1 with higher profit margin to sales but slower
Rate of sales turnover

Question 25

From the standpoint of profitability, return on investment must be considered as well as…

Answer 25

Profit margin on sales

Question 26

From standpoint of safety of investment all emphasis is on…

Answer 26

Profit margin on sales

Question 27

Economies of scale, define,

who is it used to the advantage of?

Answer 27

Having lower production costs per unit because more units are produced

Used to advantage of large efficiently run businesses

Question 28

Third dimension of conservative investing

Answer 28

Company’s ability to maintain and increase market share

Question 29

What enables a company to maintain market share

Answer 29

Getting there first with a new product or service that meets
Demand and backing it up with good marketing, servicing,
Product improvement, advertising

Question 30

Leading competitors and advertising and shelf space

Answer 30

Spend lower percentage on advertising

Get more shelf space to sell products easily

Question 31

Too high a profit margin is dangerous

Answer 31

Because it gives too many companies an incentive to enter

The industry

Question 32

Profit margins that are 2 to 3% greater than competitors

Answer 32

Sufficient to ensure a quite outstanding investment

Question 33

Question you need to ask to uncover the 3rd dimension of conservative investment

Answer 33

What can the particular company do that others would not be able to do about as well?

(If answer is nothing, this company will lose to competition)

Question 34

Every significant price move o any individual common stock in relation to stocks as a whole occurs because…

Answer 34

A changed appraisal of that stock by the financial community

Question 35

What should the investor do about stocks that have strong fundamentals but have appreciated to prices that seem too high because they are legendary in the financial community

Answer 35

They should be held onto as they will increase their earnings with
Time

Question 36

The conservative investor must be aware of the current financial community…

Answer 36

Appraisal of any industry he is interested in

Constantly probe if appraisal is significantly more or less favorable
Than the fundamentals warrant

Question 37

The more closely the financial communities appraisal of a particular stock approaches the 3 dimensions of conservative investment the…

Answer 37

Higher the price to earnings ratio

Question 38

2 stocks appear to have growth prospects of 10%. One stock has a PE of 10 and the other has a PE OF 20. Which stock is a better deal?

Answer 38

It depends, the cheaper company may have leveraged
capitalization (interest charges and preferred dividends)

That must be earned before anything accrues to the
Common stockholder, creates danger of interrupting growth rt.

Question 39

The further into the future profits will continue to grow…

Answer 39

The higher a price to earnings ration an investor can afford to
Pay

Question 40

Great growth is likely to be undiscounted in a stock when it experiences…

Answer 40

Temporary setbacks, this creates the best opportunity for

The patient investor

Question 41

An interest invest approach of analyzing a companies and it’s divisions?

Answer 41

Calculate the current and future price to earnings ratio of

One division in a company

Question 42

Financial community’s downward appraisal vs. upward appraisal

Answer 42

A change for the worse gets accepted a lot quicker than a

Change for the better in financial community’s opinion

Question 43

The only true test of whether a stock is cheap or high is not its current price in relation to former price but…

Answer 43

Whether the company’s fundamentals are significantly more

Or less favorable than the current financial community appraisal

Question 44

3rd financial community appraisal to take into consideration after the appraisal of the industry and the stock

Answer 44

The general stock market appraisals

Ex. 1927-1929, majority of the financial community believed
We were in a new era, 1946-1949 the financial community believed
Good earnings were temporary and would shrink in the depression that was sure to come

Question 45

What is the most important financial factor that ultimately determines stock prices

Answer 45

Interest rates