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Lessons from Philip Fisher - II

Mar 29, 2010

In the previous article of this series, we set forth a broad outline of the type of investments one should be looking for when it comes to Philip Fisher's framework of investing. Therefore, the next logical question that arises is - how exactly does one go about finding the companies whose market value is likely to see a tremendous appreciation in the years to come? That brings us to one the most useful concepts in investing made famous by Philip Fisher - 'Scuttlebutt'.

The scuttlebutt is nothing but a method that serves to provide clues that are needed to find the really outstanding investments. It is a process by which an investor gets to the heart of a company, to understand its relative points of strengths and weaknesses. But a reliable and accurate picture of this important aspect of a company cannot be fully gained by just reading sundry reports on the company.

It can be most effectively done only by putting your ear to the ground. By first hand interaction with the very people who directly deal with the company under study and are intimately associated with its business. It would be important to note here that most people in general would love to talk about their field of work to the keen listener. They may even be willing to share some otherwise unknown details of a company. All that is needed is to make them comfortable about the fact they will not get into any trouble by doing so.

You may have noticed that a similar strategy is used by newspapers to dig out stories from potential sources. Frequently, the source is not named, with the reason that the source did not want to make its identity public. Indeed, to get to both the positive as well as the negative opinions about a company without any hindrances, it is absolutely essential that the source feels extremely safe in divulging information to you.

So, who are these likely sources from where information can be gathered?

These can be anyone who is closely associated with the company's business. Customers, competitors, employees, ex-employees, vendors, suppliers, distributors, executives of industry associations, the company's representatives etc are all potentially invaluable sources of information about a company.

However, one important thing needs to be noted about information that is received from these various sources. Many a times, many of these sources may have vested interests in giving out certain information. Or they may even have certain prejudices in the opinions they may give. For example, an ex employee who was fired from the company may lay excessive stress on the negative aspects of a company. Thus, at the end of the day, one needs to keep this in mind while evaluating all these varied sets of opinions.

Often, one may find that some of the pieces of information and opinions that one has got from one source is in conflict with what another source has portrayed. But according to Fisher, that is far from a reason to worry. Infact, it is only normal that this will happen. However, as you go along gathering more and more information, you should end up with a fairly accurate overall picture of a company's position in the industry at the end of the exercise.

The good thing is that for those really outstanding companies that we seek, the most important aspects of the company's business should normally jump out at you in such a clear manner that you will know when a company is good enough to deserve further investigation. And when it is one of those run-of-the-mill substandard companies that are found a dime a dozen.

This was a brief note on how one must go about finding really outstanding companies. For the next few articles in the series, we shall concentrate on the key points that one must look for in an outstanding company. These are those meaningful aspects of a company that one should seek to learn about through the above mentioned way of investigation. It is the company's standing in each of these aspects that will separate the winners from the losers.

Philip Fisher Series- Previous article | Next article | All Articles

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1 Responses to "Lessons from Philip Fisher - II"

Prasad Khanolkar

Mar 30, 2010

I really like Equity Master for posting such wonderful and priceless artilces. My opinion is rarely you find such guidance given regarding investments. Hats off!!! Equity Master.

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