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Lessons from Philip Fisher - I

Mar 17, 2010

It would not be very far from the truth to say that almost every investor comes to the stock markets with one major motive - to make money. If that is the case, even before thinking of buying any stocks, the first and most important thing to do is to see how money has been made in the past in the stock market. In Fisher's view, over the years, a number of fortunes have been made in the markets by betting against the business cycle. In simple terms, this means attempting to buy in bad times and subsequently sell in good times. But he further went on to propound that a much greater amount of money has been made by using another method. And that method is to find and buy really outstanding companies and to stick with them steadfastly over the years through all kinds of market and economic fluctuations.

Needless to say, there are many companies in India today wherein it would have been possible to invest say 10 to 20 years back, and where you would be sitting on huge profits today. Profits that would be enough for you to have immense wealth not only for your own lifetime, but also for that of your future generations.

And the beauty of these opportunities was that they did not require you to time your buying to perfection, nor were they available for a very short period of time. In many cases, these opportunities were available for a number of years. All you had to do was call your broker and place your order as and when you had money available.

However, to do this, what was most certainly required was the ability to tell apart these companies from the endless repertoire of other companies that trade on the exchanges. The capability to pick out those few outstanding companies that had the greatest potential to deliver rewards to you as a shareholder. And to separate them from the many others, who would later turn out to be just moderate successes, or worse, complete and utter failures.

The good news is that if you agree with the above, it will only be logical to conclude that the kind of opportunities described above that existed in the past also necessarily exist today. It's just a matter of having the ability of separating the wheat from the chaff. And these are the ones that you should be looking at if you want to make the kind of fortune that Fisher describes.

As Phil Fisher is known to have said, "The greatest investment reward comes to those who by good luck or good sense find the occasional company that over the years can grow in sales and profits far more than industry as a whole. Further, when we have found such a company we had better stick with it for a long period of time."

We certainly cannot leave our finding such companies to 'good luck'. This leaves us with the only other alternative finding such companies by 'good sense' as Fisher calls it.

With some basic clues as to the kind of investment that we will be looking for, in the next few articles we will look at how to go about indentifying such companies. In other words, we will look at some of the qualities and characteristics of great companies. Ones which put them in a position where they have the potential to turn out to be really outstanding investments.

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1 Responses to "Lessons from Philip Fisher - I"

Manoj Pabrai

Jun 21, 2018

Just a general talk,much is already known. Unless he can give concrete examples of a stock and its movement, it is just another write up.

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