AAII Journal 14

S u cce ssfu l in ve stin g is o fte n calle d a m ix b e twe e n scie n ce

an d art. D e sp ite m an y atte m p ts to fin d win n in g co m b in atio n s
o f m e asu rab le facto rs th at can b e u se d to p re d ict sto ck m arke t
win n e rs, in ve stm e n t d e cisio n s o fte n b o il d o wn to ju d gm e n t
calls th at take q u alitative facto rs in to co n sid e ratio n .
O n e o f th e first in ve stm e n t p h ilo so p h e rs to fo cu s alm o st
e xclu sive ly o n q u alitative facto rs was P h ilip A. F ish e r, wh o
b e gan as a se cu ritie s an alyst in 1 928 an d th re e ye ars late r
fo u n d e d th e in ve stm e n t co u n se lin g firm , F ish e r & C o .
At a tim e wh e n m an y in ve stm e n t p ro fe ssio n als atte m p te d to
m ake m o n e y in sto cks b y b e ttin g o n th e b u sin e ss cycle , F ish e r
in ste ad favo re d b u yin g an d h o ld in g th e sto cks o f co m p an ie s
th at we re we ll-p o sitio n e d fo r lo n g-te rm gro wth in sale s an d
p ro fits. An d th is p o sitio n in g co u ld b e st b e d e te rm in e d b y
e xam in in g facto rs th at are d ifficu lt to m e asu re th ro u gh ratio s
an d o th e r m ath e m atical fo rm u latio n sth e q u ality o f m an age -
m e n t, th e p o te n tial fo r fu tu re lo n g-te rm sale s gro wth , an d th e
firm s co m p e titive e d ge .
F ish e r o u tlin e d h is p h ilo so p h y fo r th e lay in ve sto r in h is b o o k
C o m m o n S to cks an d U n co m m o n P ro fits, wh ich was p u b lish e d
in 1 958. H e late r e xp an d e d u p o n h is wo rk in C o n se rvative
In ve sto rs S le e p We ll an d D e ve lo p in g an In ve stm e n t P h ilo so -
p h y. All th re e wo rks h ave b e e n re p u b lish e d b y Jo h n Wile y &
S o n s in C o m m o n S to cks an d U n co m m o n P ro fits an d O th e r
Writin gs b y P h ilip A. F ish e r, $1 9.95, Jo h n Wile y & S o n s In c., 605
T h ird Ave ., N e w Yo rk, N Y 1 01 58) . T h e se writin gs are th e p rim ary
so u rce fo r th is article .
Growth Stocks: The Overall Philosophy
F ish e r first an d fo re m o st was a gro wth sto ck in ve sto r. H e fe lt
th e gre ate st in ve stm e n t re tu rn s d id n o t co m e fro m th e p u rch ase
o f sto cks th at we re u n d e rvalu e d , sin ce e ve n a sto ck th at is
und ervalued b y as m uch as 50% would only d oub le in p rice once
it re ach e d fair m arke t valu e . In ste ad , h e so u gh t m u ch h igh e r
re tu rn s fro m th o se co m p an ie s th at co u ld ach ie ve gro wth in sale s
an d p ro fits gre ate r th an th e o ve rall m arke t o ve r a lo n g p e rio d o f
tim e . O n th e o th e r h an d , o n ce th o se co m p an ie s we re fo u n d , h e
favo re d b u yin g th e m o p p o rtu n istically, e ith e r wh e n th e m arke t
te m p o rarily u n d e rvalu e s th e co m p an y d u e to u n e xp e cte d b ad
n e ws, o r wh e n th e o ve rall m arke ts are d e p re sse d .
F ish e r d id n o t se e k co m p an ie s th at sh o we d p ro m ise o f sh o rt-
te rm gro wth d u e to cyclical e ve n ts o r o n e -tim e facto rs, fe e lin g
th at th e tim in g was to o risky an d th e p ro m ise d re tu rn s to o sm all.
In ste ad , h e fo cu se d o n lo n g-te rm gro wth , wh ich h e fe lt co u ld
o n ly co m e fro m co m p an ie s th at we re stro n g in th re e d im e n -
sio n s :
T h e co m p an y is p ro d u cin g go o d s o r se rvice s with th e p o te n -
tial fo r fu tu re lo n g-te rm sale s,
T h e co m p an y h as sp e cial ch aracte ristics th at will allo w it to
re tain a favo rab le co m p e titive e d ge o ve r e xistin g co m p e ti-
to rs an d n e wco m e rs, an d
T h e co m p an y h as e xce lle n t m an age m e n t with b o th a d e te rm i-
n atio n to gro w th e co m p an y, an d th e ab ility to im p le m e n t its
p lan s.
T ru e lo n g-te rm gro wth co m p an ie s, h e fe lt, we re n o t n e ce ssar-
ily sm all an d re lative ly yo u n g firm s, alth o u gh h e d id n o t
e xclu d e th e se co m p an ie s as lo n g as th e y h ad so m e o p e ratin g
h isto ry u p o n wh ich h e co u ld ju d ge h e d id n o t favo r n e w firm s) .
O n th e o th e r h an d , h e n o te d th at th e q u alitie s th at co n stitu te
e xce lle n t m an age m e n t vary co n sid e rab ly b ase d o n firm size .
Finding Companies Worthy of Consideration
Alth o u gh F ish e r wro te fo r th e ave rage in d ivid u al in ve sto r, h is
ap p ro ach is n o t o n e th at is e asy to im p le m e n t.
T o b e gin with , F ish e r d id n o t b e gin h is se arch th ro u gh an y
m e th o d ical scre e n in g syste m . In ste ad , h e m ain tain e d th at m o st
o f h is o rigin al id e as cam e fro m ke y in ve stm e n t m e n o th e r
in ve stm e n t ad vise rs) wh o m h e h ad co m e to re sp e ct in te rm s o f
th e ir kn o wle d ge o f th e kin d s o f sto cks h e p re fe rre d . O th e r
Its Quality That Counts: The Fisher
Approach to Stock Investing
B y M ari a C rawfo rd S co tt
WORKSHOP
STOCK
ANALYSIS
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Maria Crawford Scott is editor of theAAII Jo u rn al.
September 1996 15
so u rce s in clu d e d trad e an d fin an cial p e rio d icals.
T h e p rim ary typ e o f co m p an y h e saw as a p o te n tial fo r fu rth e r
in ve stigatio n was o n e th at was e ith e r in o r e n te rin g in to an are a
with o p p o rtu n itie s fo r u n u su al sale s gro wth , b u t in wh ich o th e r
n e wco m e rs o r co m p e tito rs wo u ld h ave a m o re d ifficu lt tim e
e n te rin g. O n ce a p ro sp e ctive firm is fo u n d , F ish e r said h is n e xt
step was to d eterm ine whether the com p any m easured up to his
1 5-p o in t crite ria. T o d e te rm in e th is, h e first e xam in e d th e
fin an cial state m e n ts fo r a th o ro u gh u n d e rstan d in g o f th e n atu re
o f th e b u sin e ss, in clu d in g: its cap italizatio n an d fin an cial p o -
sitio n , p ro fit m argin s, a b re akd o wn o f to tal sale s b y p ro d u ct
lin e s, th e e xte n t o f re se arch activity, e arn in g state m e n t figu re s
th at th ro w ligh t o n d e p re ciatio n an d ab n o rm al o r n o n -re cu rrin g
costs in p rior years op erations, and the m ajor owners of the stock
in clu d in g th e d e gre e o f o wn e rsh ip b y m an age m e n t. T h e n , h e
u se d wh at h e te rm s th e scu ttle b u tt ap p ro ach to h e lp an swe r
h is 1 5 p o in ts, talkin g to co m p e tito rs, an alysts, an d an yo n e wh o
m ay h ave kn o wle d ge o f th e co m p an y. L astly, h e so u gh t in fo r-
m atio n to an alyze h is 1 5 p o in ts th ro u gh a d iscu ssio n with
m an age m e n t.
The 15 Points
What are the 1 5 p oints?
In h is first b o o k, F ish e r d e scrib e d a 1 5-p o in t syste m h e u se d
to rate a p ro sp e ctive co m p an y, an d h e lim ite d h is in ve stm e n ts
to firm s th at fu lfille d m o st o f th o se 1 5 p o in ts. In late r writin gs,
h e re state d th e se p o in ts in te rm s o f th e th re e d im e n sio n s h e fe lt
we re n e ce ssary fo r stro n g lo n g-te rm gro wth ; th e y are p re se n te d
h e re n o t in th e o rigin al o rd e r, b u t in re o rgan ize d fo rm :
Functional factors:
1) Is th e co m p an y p ro vid in g a p ro d u ct o r se rvice th at h as
su fficie n t m arke t p o te n tial fo r a sizab le in cre ase in sale s fo r
se ve ral ye ars? In th is in stan ce , F ish e r is d iscu ssin g sale s o ve r
th e lo n g-te rm , an d warn s again st firm s th at m ay sh o w sp u rts d u e
to o n e -tim e facto rs. O n th e o th e r h an d , h e n o te s th at th e p ro b -
le m s o f m arke tin g n e w p ro d u cts o fte n cau se s sale s in cre ase s to
co m e in a se rie s o f u n e ve n sp u rts rath e r th an a sm o o th p ro gre s-
sio n , an d su gge sts ju d gin g sale s gro wth o ve r a se rie s o f ye ars
rath e r th an sin gle ye ars.
2) D o e s th e co m p an y h ave su p e rio rity in p ro d u ctio n is it th e
lo we st-co st p ro d u ce r fo r m an u factu rin g firm s) o r h ave th e
lo we st-co st o p e ratio n s fo r se rvice firm s o r re taile rs) ? L o w
p ro d u ctio n co sts will allo w a co m p an y to su rvive d u rin g h ard
tim e s wh e n h igh e r-co st co m p e tito rs are we e d e d o u t, h e n o te s.
In ad d itio n , lo w-co st p ro d u ce rs are b e tte r ab le to b u ild fu n d s
in te rn ally fo r fu tu re gro wth .
3) D o e s th e co m p an y h ave a stro n g m arke tin g o rgan izatio n ?
F ish e rs d e fin itio n o f a stro n g m arke t o rgan izatio n is b ro ad , an d
in clu d e s th e ab ility to re co gn ize ch an ge s in p u b lic taste s, an
e ffe ctive ad ve rtisin g e ffo rt, an d an e fficie n t p ro d u ct d istrib u -
ti o n syste m .
4) D o e s th e co m p an y h ave o u tstan d in g re se arch an d d e ve l-
o p m e n t e ffo rts? F ish e r was a stro n g b e lie ve r in re se arch e ffo rts
to p ro d u ce n e w an d b e tte r p ro d u cts in a b e tte r way o r at lo we r
cost. Som etim es, he noted , these efforts would even lead to new
lin e s o f b u sin e ss. H e su gge ste d e xam in in g th e am o u n t e x-
p e n d e d o n re se arch re lative to its size , b u t warn e d again st
sim p le co m p ariso n s am o n g co m p an ie s b e cau se o f d iffe re n ce s
in wh at is in clu d e d in re p o rte d re se arch an d d e ve lo p m e n t
figu re s. F ish e r was also co n ce rn e d ab o u t th e e ffe ctive n e ss o f a
firm s re se arch e ffo rt in d icate d b y its ab ility to b rin g re se arch
id e as to p ro d u ctio n an d e ve n tu ally to m arke tth at is, its
te am wo rk with th e o th e r p arts o f th e firm . T h e m o st im p o rtan t
q u e stio n , h e said , is h o w m u ch in n e t p ro fits o ve r th e p ast 1 0
ye ars h as b e e n a re su lt o f re se arch e ffo rts? F irm s th at h ave d o n e
we ll in th is re gard in th e p ast, h e said , will m o st like ly d o so in
th e fu tu re .
5) H o w e ffe ctive is th e co m p an y s co st an alysis an d acco u n t-
in g co n tro ls? G o o d m an age m e n t an d th e e fficie n t u se o f re -
so u rce s can o n ly co m e fro m go o d in fo rm atio n , acco rd in g to
F ish e r. In ad d itio n , th e fin an ce fu n ctio n sh o u ld p ro vid e an e arly-
warn in g syste m fo r p ro b le m s th at co u ld affe ct p ro fitab ility.
6) D o e s th e co m p an y h ave fin an cial stre n gth ? F ish e r was
concerned here with a firm s ab ility to finance growth without the
n e e d to u se e q u ity fin an cin g, sin ce in cre asin g th e n u m b e r o f
sh are s o u tstan d in g wo u ld d ilu te an e xistin g sh are h o ld e rs
b e n e fits o f in ve stin g in th e firm .
Excellence in management and labor relations:
7) D o e s m an age m e n t h ave th e d e te rm in atio n , le ad e rsh ip
an d skills n e ce ssary to co n tin u e to d e ve lo p p ro d u cts o r se rvice s
th at will fu rth e r in cre ase sale s? F ish e r stro n gly b e lie ve d th at
go o d m an age m e n t was ke y to lo n g-te rm gro wth b y sp o ttin g
n e w o p p o rtu n itie s, ad ap tin g to ch an gin g m arke t e n viro n m e n ts,
d e ve lo p in g p lan s, an d co o rd in atin g th e e ffo rts o f th e o rgan iza-
tio n to carry o u t th o se p lan s.
8) Is th e re a go o d wo rkin g re latio n sh ip am o n g th e m an age -
m e n t te am ? F ish e r fe lt th at go o d te am wo rk was cru cial am o n g
th e m ajo r d ivisio n s, an d th at th is was b e st fo ste re d b y a stro n g
e ffo rt to d e ve lo p an d p ro m o te its m an age rs fro m with in th e
o rgan izatio n .
9) D o e s th e co m p an y h ave e n o u gh d e p th to its m an age m e n t?
E ve n sm alle r firm s, F ish e r n o te d , n e e d e n o u gh d e p th in m an -
age m e n t to p re ve n t a co rp o rate d isaste r sh o u ld so m e th in g
h ap p e n to th e ke y p e rso n .
1 0) D o e s th e co m p an y h ave go o d lab o r re latio n s? F ish e r fe lt
th at th e e n tre p re n e u rial atm o sp h e re an d te am wo rk with in a
firm sh o u ld p e rm e ate th ro u gh all asp e cts o f a co m p an y, in clu d -
in g ran k an d file wo rke rs. M e d io cre re latio n s, h e state d , te n d s
to p ro d u ce h igh lab o r tu rn o ve r an d gre ate r co sts in train in g n e w
wo rke rs.
1 1 ) D o e s m an age m e n t h ave a su fficie n tly lo n g-ran ge o u t-
lo o k? F ish e r n o te d th at lo n g-te rm gro wth so m e tim e s co m e s at
th e e xp e n se o f sh o rt-te rm p ro fits, an d m an age m e n ts th at are
u n willin g to fo re go cu rre n t p ro fits can h u rt th e fu tu re gro wth o f
a fi rm .
1 2) D o e s th e firm p ractice go o d in ve sto r re latio n s? T o F ish e r,
go o d in ve sto r re latio n s m e an s a m an age m e n t th at is willin g to
b e h o n e st an d fo rth co m in g wh e n tro u b le s an d d isap p o in t-
m e n ts arise . E vasio n s, h e state d , te n d to b e a sign o f we ak
AAII Journal 16
Philosophy and style
Investment in outstanding companies that over the
years can grow in sales and profits more than industry
as a whole. The key features of outstanding companies
are: strongmanagement that has a disciplined approach
designed to achieve dramatic long-term growth in prof-
its, with products or services that have the potential for
sizable sales longterm, and with other inherent qualities
that would make it difficult for competitors and newcom-
ers to share in that potential growth.
Universe of stocks
No restrictions on universe of stocks fromwhich to
select. Over-the-counter stocks should not be over-
looked, but outstanding companies are not necessarily
young and small.
Criteria for initial consideration
Prospective companies should pass most of the follow-
ing 15 points, which can be divided into three main
dimensions:
Functional factors:
Products or services with sufficient market potential for
sizable increase in sales for several years. Major sales
growth, judged over series of years.
Superiority in productionlowest-cost production (for
manufacturing firms) or lowest-cost operation (for
service firms or retailers).
Strongmarketingorganizationefficiency of sales, ad-
vertising, and distributive organizations.
Outstandingresearch and development effortsamount
expended relative to its size, effectiveness of effort as
indicated by ability to bringresearch ideas to produc-
tion and to market and by how much research con-
tributed to net profits.
Effectiveness of companys cost analysis and account-
ingcontrols, and choice of capital investments that will
bringthe highest return.
Financial strength or cash positionsufficient capital
to take care of needs to exploit prospects for next
several years without the need to raise equity capital.
Excellence in Management
Attitude of management to continue to develop prod-
ucts or services that will further increase sales.
Development of good in-house management and team-
work.
Management depth.
Good labor and personnel relations: Affiliation with an
international union may be an indication of bad rela-
tions; labor turnover relative to competitors.
Long-range outlook by management even at the ex-
pense of short-term profits.
Good investor relations, and willingness to talk freely
about problems.
Management of unquestionable integritysalaries and
perks in line with those of other managers.
Business characteristics
Above-average profitability: Compare profit margins
per dollar of salescompare within industry and ex-
amine for several years, not just single years. Older and
larger firms are usually the best in their industry.
Younger firms may elect to speed up growth by spend-
ingall or a large part of profits on research or sales; for
these, make sure a narrow profit margin is due to
spendingin these areas alone.
Ability to maintain good profit margins: Good position
relative to competitionfor instance, skill in a particu-
lar line of business, or patent protection for a small
business.
Secondary factors
Once an outstanding company is found, purchase
stock when it is out-of-favor either because the market
has temporarily misjudged the true value of the company,
or because of general market conditions. Outstanding
companies can also be purchased at fair value, but
investor should expect a lower (but respectable) return.
Stock monitoring and when to sell
Use a three-year rule for judgingresults if a stock is
underperforming but no fundamental changes have
occurred.
Hold stock until there is a fundamental change in its
nature or it has grown to a point where it will no longer
be growingfaster than the overall economy.
Dont sell for short-termreasons.
Sell mistakes quickly, once they are recognized.
Dont overdiversify10 or 12 larger companies is
sufficient, investingin a variety of industries with differ-
ent characteristics.
Philip Fishers Approach in Brief
September 1996 17
m an age m e n te ith e r th e y d o n o t h ave a p lan to d e al with an
u n e xp e cte d d ifficu lty, o r th e y d o n o t h ave a se n se o f re sp o n si-
b ility to ward sh are h o ld e rs.
1 3) D o e s th e m an age m e n t h ave u n q u e stio n ab le in te grity?
T h e m an age m e n t o f a co m p an y is always far clo se r to its asse ts
th an is th e sto ckh o ld e r, F ish e r state s. An d m an age rs can
b e n e fit th e m se lve s at th e e xp e n se o f sh are h o ld e rs in an in fi-
n ite n u m b e r o f ways, in clu d in g salarie s an d p e rks h igh ab o ve
th e n o rm . T h e o n ly p ro te ctio n sh are h o ld e rs h ave again st m an -
age m e n t ab u se s o f p o sitio n is to in ve st in co m p an ie s wh o se
m an age rs h ave u n q u e stio n e d in te grity.
Business characteristics
1 4) D o e s th e firm h ave ab o ve -ave rage p ro fitab ility? In a rare
in stan ce , F ish e r actu ally su gge sts a m ath e m atical co m p ari-
so n p ro fit m argin s p e r d o llar o f sale s, co m p are d again st
sim ilar firm s in th e sam e in d u stry. O ld e r an d large r firm s sh o u ld
h ave am o n g th e b e st figu re s in th e ir in d u stry, h e state s. O n th e
o th e r h an d , yo u n ge r firm s m ay e le ct to sp e e d u p gro wth b y
sp e n d in g all o r a large p art o f p ro fits o n re se arch o r sale s; fo r
th e se firm s, F ish e r su gge ste d th at in ve sto rs m ake su re th at
n arro w p ro fit m argin s are d u e to sp e n d in g in th e se are as alo n e .
F irm s o p e ratin g in are as with h igh p ro fits will attract co m p e ti-
tio n , b u t o p e ratin g at e xtre m e ly h igh e fficie n cy le ve ls will
re d u ce th e in ce n tive fo r co m p e tito rs to e n te r th e m arke t.
1 5) Is th e re so m e asp e ct to th e b u sin e ss th at will allo w th e
co m p an y to ke e p its re lative co m p e titive e d ge ? In n o vatio n s,
sp e cial skills o r se rvice s, p ate n t p ro te ctio n s an d sim ilar ad van -
tage s give co m p an ie s a stro n g ab ility to fe n d o ff co m p e tito rs o r
n e wco m e rs to th e are a.
Secondary Factors: When to Buy
F ish e r d id n o t n e ce ssarily favo r th e p u rch ase o f an o u tstan d -
in g co m p an y at an y p rice . In ste ad , h e su gge ste d th at in ve sto rs
e xp lo it b u yin g o p p o rtu n itie s, wh ich can take se ve ral fo rm s:
S h o rt-te rm tro u b le s: E ve n co m p an ie s th at are u n d e r th e
gu id an ce o f e xce p tio n ally ab le m an age rs are b o u n d to h ave
tro u b le s, p lan s th at fail to u n fo ld o r n e w p ro d u cts with kin ks
th at n e e d to b e wo rke d o u t, an d o n ce th at tro u b le p ro d u ce s
a p rice d e clin e , in ve sto rs can p u rch ase th e sto ck.
M arke t b lin d n e ss: E arn in gs in cre ase s th at h ave n o t ye t b e e n
re fle cte d in p rice ch an ge s.
M arke t d e clin e s: Wh e n th e o ve rall m arke t d ro p s an d p u lls th e
sto ck d o wn with it, in ve sto rs are face d with a b u yin g o p p o r-
tu n ity.
F ish e r n o te d th at in ve sto rs can still m ake m o n e y if o p p o rtu -
n itie s d o n t arise , b u t th e y m u st h ave m o re p atie n ce with th e
ch o se n sto ck an d re co gn ize th at th e ir p ro fits will b e sm alle r.
Alth o u gh F ish e r re co gn ize d o p p o rtu n itie s in m arke t d e clin e s,
h e su gge ste d th at in ve sto rs in ge n e ral ign o re b u sin e ss an d
e co n o m ic tre n d s, in ve stin g fu n d s as so o n as an ap p ro p riate
b u yin g o p p o rtu n ity arise s. F o r p articu larly co n se rvative in -
ve sto rs, h e re co m m e n d e d d o llar co st ave ragin g.
Stock Monitoring and When to Sell
F ish e r p ro vid e d a n u m b e r o f h e lp fu l ru le s b o th fo r p u rch asin g
an d se lli n g.
F o r sto ck p u rch ase s, F ish e r warn e d again st ago n izin g o ve r
e igh th s an d q u arte rs wh e n p lacin g a trad e . Atte m p tin g to sh ave
p o in ts o ff th e p rice , h e n o te d , o fte n re su lts in a trad e n o t go in g
th ro u gh , an d th e in ve sto r lo se s o u t o n in ve stin g lo n g te rm in an
o u tstan d in g firm . An d an y savin gs, h e p o in te d o u t, will b e
in sign ifican t co m p are d to lo n g-te rm re tu rn s.
F ish e r was a stro n g ad vo cate o f lo n g-te rm in ve stin g, ad visin g
in ve sto rs to h o ld o n to th e ir sto cks u n til th e re is a fu n d am e n tal
ch an ge in th e firm s n atu re , o r it h as gro wn to a p o in t wh e re it will
n o lo n ge r b e gro win g faste r th an th e o ve rall e co n o m y. H e
warn e d , h o we ve r, th at wh e n co m p an ie s gro w, m an age m e n ts
n e e d to ch an ge an d ad ap t, an d in ve sto rs m ay n e e d to se ll if
m an age m e n t d o e sn t ke e p p ace . F ish e r re co m m e n d e d again st
se llin g fo r sh o rt-te rm re aso n sfo r e xam p le , to take p ro fits if a
te m p o rary d o wn tu rn is e xp e cte d .
F ish e r su gge ste d th at in ve sto rs u se a th re e -ye ar ru le fo r
ju d gin g re su lts if a sto ck is u n d e rp e rfo rm in g th e m arke t b u t
n o th in g e lse h as h ap p e n e d to ch an ge th e in ve sto rs o rigin al
vie w. If afte r th re e ye ars it is still u n d e rp e rfo rm in g, h e re co m -
m e n d e d th at in ve sto rs se ll th e sto ck.
O n th e o th e r h an d , F ish e r ad vise d se llin g m istake s q u ickly,
o n ce th e y are re co gn ize d .
L astly, F ish e r warn e d again st o ve rd ive rsificatio n , wh ich h e
fe lt cau se d in ve sto rs to lo we r th e ir stan d ard s an d to p u t m o n e y
in co m p an ie s in wh ich th e y d o n o t th o ro u gh ly u n d e rstan d .
S u fficie n t d ive rsificatio n , h e said , wo u ld b e an in ve stm e n t in 1 0
o r 1 2 large r co m p an ie s in a varie ty o f in d u strie s with d iffe re n t
ch aracte ristics, an d an y h o ld in g o f o ve r 20 co m p an ie s is p ro b -
ab ly to o m u ch .
Fisher in Summary
Wh ile F ish e r d o e s n o t p ro vid e an e asy-to -fo llo w m e th o d ical
ap p ro ach fo r in d ivid u al in ve sto rs to im p le m e n t, h is d iscu ssio n
o f th e q u alitative facto rs with in o u tstan d in g co m p an ie s se rve s
as a u se fu l o u tlin e th at ad d s so m e co lo r to th e strict m ath e m ati-
cal ap p ro ach e s. B e co m in g acq u ain te d with all o f a co m p an y s
fin an cial state m e n tsth e 1 0-k an d an n u al re p o rtsas we ll as
gain in g an u n d e rstan d in g o f th e in d u stry in wh ich a co m p an y is
o p e ratin g an d kn o wle d ge o f th e firm s co m p e titio rs are all
n e ce ssary co m p o n e n ts o f F ish e rs ap p ro ach .
F ish e r wro te o f th e co m p lain ts h e re ce ive d co n ce rn in g th e
am o u n t o f tim e an d e ffo rt n e ce ssary to im p le m e n t h is ap p ro ach .
H o we ve r, h e was u n sym p ath e tic:
Is it e ith e r lo gical o r re aso n ab le th at an yo n e co u ld [ach ie ve
th e kin d o f re ward gain e d fro m se le ctin g gro wth sto cks su cce ss-
fu lly] with an e ffo rt n o h ard e r th an re ad in g a fe w sim p ly wo rd e d
b ro ke rs fre e circu lars in th e co m fo rt o f an arm ch air o n e e ve n in g
a week? . . .So far as I know, no other field s of end eavor offer these
h u ge re ward s th is e asily.