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Couple of days back during my radio interview with Michelle Martin, I shared one of my favourite investing books - Philip A. Fisher’s Common Stock and Uncommon Profits. It was first published in 1958. And if there's one big lesson I took away from Philip Fisher's book... it's Scuttlebutt. You see, Philip Fisher ran his own investment firm in 1931 and employed deep research of a company's management, products and finding out how the company can continue to keep growing. Scuttlebutt is a way to gather first-hand information by talking to a company's management, even customers, competitors and suppliers, above just reading its financial statements. I call this uncovering a business' "hidden truth". And yes, Warren Buffett frequently read this too. In fact, Warren Buffett's investing approach is often referred to being 15% Fisher, 85% Graham". Reading this book helped me avoid bond defaults over the years, made less mistakes along the way after speaking with sketchy CEOS/founders before. I've also uncovered great investing gems that had huge potential for profits with this technique. One of them was actually going down to Food Empire's office to speak with management - when shares were trading just 19 cents (almost wanted to sell at the bottom, but instead decided to double down after speaking with them)! I picked up signs they were very prudent during tough times - squeezing collection terms and delaying suppliers. This improved cash flow. And that was during the peak of the Russia/Crimea crisis many years ago. I made a good profit from the trade. Not too bad. Not too bad. Now, there's a way to approach Scuttlebutt, and it's found in a 15-Point checklist in the book itself, which I've done a summary: 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 sizable increase in sales for at least several years?
2. Does the management have a determination to continue to develop products or processes that will further increase sales potentials after the current product lines have 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, peculiar to the industry, that give the company an edge over competitors?
12. Does the company have a short-range or long-range outlook on profits?
13. Will growth require significant equity financing that dilutes existing shareholders?
14. Does the management talk freely to investors when things are going well but 'clam up' during difficulties?
15. Does the company have a management of unquestionable integrity?
Common Stocks and Uncommon Profits is also one of my Top 13 Investing Books to Read for Beginners. Hope this helps you, though I still highly recommend you to read the entire Philip A. Fisher's Common Stock and Uncommon Profits - trust me, it's worth it. Sometimes, investing can be simple. Willie Keng, CFA Founder, dividendtitan.com P.S. Like this issue? Click HERE to join other dividend investors reading my DT Compound Letter. I send my regular letters to your inbox. |
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