Phil Fisher growth investors remaining chapters Flashcards
In performing scuttlebutt (talking to people you don’t know), what is important for you to do?
You must arouse their interest and their confidence to the point
That they will tell you what they know
What does Fisher characterize as the best way to make money in investing?
Make the greatest profit for the least risk
A successful investor is usually and individual who is inherently…
Interested in business problems
An investor should only accepts an advisor with concepts fundamentally…
The same as his own
Growth stocks vs high yield dividend stocks
Growth stocks that reinvest their capital wisely provide better
Returns than blue chip stocks and eventually pay better dividends
What does an award for management accomplishment signify for a chemicals company?
They have worthwhile research departments developing useful
Products
Means earnings will grow for company for years to come
When is a good time to buy companies?
When you can identify 1-time setbacks that are quickly addressed
By management
Unless there is undue euphoria in markets as seen in 1928, 29, 98 and 99 investors…
Should continue to invest most of there money in the stock
Market
5 major factors that influence the level of stock prices?
1 mass psychology
2 interest rates
3 overall governmental attitude towards investment/private
enterprise
4 long range trend of inflation
5 new inventions and techniques that affect old industries
No matter what macroeconomic factors persist, it’s important to take investment action when…
Matters you know about a specific company warrant an action
What is one of the most dangerous emotions we can indulge ourselves in during investing?
Realizing a purchase of the stock was not a good move and not
Selling it because it is below the price purchased
Your ego is getting in the way, if making many hundred percent
Gains over the long term is important, a 20% loss is insignificant
If the fifteen points outlined in chapter 3 no longer exist as they did when the stock was purchased…
The stock should be sold
What causes the stock to no longer meet the 15 points?
1 deterioration of management
2 or the company no longer has the prospect of increasing the
Markets for its product
Deterioration of management occurs
When smugness, complacency or inertia replace the former
Drive of ingenuity
Usually occurs when new set of top executives replace
Predecessors (change policies that had made company
Outstanding)
When management deteriorates, when should the stock be sold?
It should be sold right away, even if the market conditions look
Good or there are high capital gains
Growth prospects of market deteriorate
Company will only grow as fast as the economy, even though
Management is still good
The stock should be sold, but doesn’t need to be sold right
Away, can be kept until a more suitable investment is found
What annual increase in earnings would be particularly satisfactory to its owners?
Average annual increases of 12% over 10 years
Postponing an attractive purchase because of fear of what the general market might do will…
Over the years prove very costly
When should you sell an outstanding company?
Almost never, even if it is temporarily overpriced
What may be more beneficial fore management to do, than paying a dividend to stockholders?
Build a new plant, launch a new product, install cost saving
Equipment on old plan
When management piles up cash and liquid assets far beyond any present or perspective needs of the business…
Stockholders get no benefit from retained earnings
What is the worst thing management can do with retained earnings?
Pile up cash to justify paying itself a larger salary
A retail store installing expensive air conditioners in all its stores is an example of retained earnings
That will not increases earnings, but may be necessary for
Attracting shoppers over the summer
A major failure of GAAP on balance sheets?
Accumulated depreciation often fails to keep up with rising cost
Of buying outmoded assets
What is Phil Fisher’s key recommendation about dividends?
Usually to the stockholder’s benefit when the company can find
High growth areas to reinvest the money instead of paying
A dividend subject to taxes and fees
When a company pays a dividend, it is good when it…
Has a history of paying a dividend that does not decrease
Younger companies and dividends
Younger companies may not pay dividends for many years
Until the assets are at point where depreciation flow back is
Greater
At that point 25-40% of profits can be paid out to stock holders
Management should only increase dividends when the following 2 conditions apply.
1 funds are available for all good opportunities for growth that
Management is uncovering
2 there is every reason to believe that new regular yield rate
Can be maintained from this time on
When should dividends be lowered?
Only in the gravest emergencies
One time dividends
Fail to leave permanent impact on price of shares
Contrary policies to desires of Longterm investors
When selecting desirable stocks dividends should be…
Given the least weight
Don’t buy promotional companies?
Only buy companies with established operations
Impossible to assess batting average of a new company
Don’t ignore a good stock just because it’s traded over the counter
Find the right OTC broker
Lots of good small and mid sized companies trade OTC before
They go public
Don’t buy a stock just because you like the tone of an annual report
Usually fail to discuss actual problems of a company and
Are too optimistic
When an annual report is pessimistic should it influence an investment decision?
When should an annual report influence an investment decision?
No
2) when reports fail to give proper information on matters of real
Significance to investor
Don’t assume that high price at which a stock may be selling in relation to earnings is necessarily an indication that further growth in these earnings has largely been discounted to price.
If a stock historically trades at a premium to average companies
And has a strong chance of growing earnings, it is not overpriced
Don’t quibble over eighths and quarters
Adjust your limited order higher if a stock won’t go down to
The price you want
Not doing so can lead to missing out on great opportunities
Don’t over stress diversification
May be more dangerous to diversify into companies you know
Nothing about than to own a few companies that you know well
Minimum recommended diversification
20% stake in 5 blue chip companies of different industries
Or 8-10% stake in mid sized growth companies in different
Industries, no more than 5% for large investors
Chemical companies and diversification
Chemical companies are often diversified in themselves
As they have an array of products and services
If a company goes from speculative to be being broadened in more growth industries, which consists of a dramatic increase in market value…
It should be held onto
Don’t be afraid of buying on war scare
Stocks after the downward spiral from the outbreak of war
Have always sold at higher prices by end of the war
Stocks always rebound when war scares subside
How fast should you buy on a war scare?
Buy slowly, because actual outbreak would cause prices to drop
Sharply lower
Buy products whose products will continue to have demand in
Wartime
Is sorting through past data of stock prices and basing your investment decisions on this data financially sound?
No it very dangerous
Price is based on current appraisal of situation, has there been
Improving situations for the company to earn more
Don’t fail to consider time as well as price in buying a true growth stock
If you feel a stock might go lower, by it in a set time in the future
(Ex. Wait 5 months)
Don’t follow the crowd
Never buy something that moves strictly from psychology of
The financial community w/out change in underlying economic
Factors
What research must an investor do for an industry in which he is purchasing shares of common stock?
Must examine factually and analytically the prevailing financial
Sentiment about about the industry/specific company bought
If he can find an industry/company where prevailing mode
Of financial thinking is less favorable than actual facts, a
Huge profit will be made
If a struggling company is replaced by famous management…
It’s price will shoot up immediately and be overvalued
If little known management is turning a company around…
It may take years for the financial community to recognize this
So the diligent investor can get in at cheap prices
A great way to find good companies
Become friends with other interested investors who are trained
In investments
Find out if company has prevented new competitors from
Entering the field of growth
Consulting research laboratories
Hold great leads for finding outstanding common stocks
But heavily guard their information
What initial research should be done on a company you are excited about? 4 things
1 look over companies basic financial position
2 total sales in product lines
3 competition
4 degree of officer or major ownership in stock
5 depreciation
6 profit margins
7 extent of research activities
8 non-recurring costs in prior years operations
Using scuttlebutt to research outstanding companies, who should be contacted?
Key customers, suppliers, competitors, ex-employees, scientists in related field
How did phil fisher meet a lot of people for scuttlebutt?
He was introduced to them by those people’s commercial
Bankers
Common characteristic about good management
They are frank in thoroughly answering about weak points of
Company as they are at talking about strong points
An investor should never invest in a growth stock unless…
He has gathered 50% of the info he needs to make the decision
Beforehand through scuttlebutt
