When looking for growth stocks, start by looking at the industry! Master Phillip Fisher has two major tools.

Philip Fisher's investment experience and philosophy

Do you also prefer to invest in growth stocks?

When it comes to growth stocks, of course we have to talk about Philip A. Fisher (Philip A. Fisher). Benjamin Graham is known as the “father of value investing,” while Philip Fisher is a recognized pioneer in growth stock investing. Buffett once said that 85% of his blood is Graham's blood and 15% is Fisher's blood.

So how did Fisher Price embark on the path of investing in growth stocks?

Fisher Price has been interested in investing in stocks since childhood. When I heard my elders talk about the economy and stocks, I felt that “a new world unfolds before my eyes”, and I also experienced sweetness through investment practices in middle school. Enlightened early on, Fisher is quite similar to Buffett and Peter Lynch.

Afterwards, he attended Stanford Business School, and often followed his mentors to visit major companies in the San Francisco area and had the opportunity to communicate with management. He began his career as a securities analyst at San Francisco's Anglo-London Bank (Anglo-London Bank).

When he was 23 years old (1931), he founded Fisher & Company (Fisher & Company) and managed the company's affairs until 1999, when he retired at the age of 91, which brought considerable returns to customers. However, due to war during this period, he enlisted in the military. But it was also during that time that he summed up the trick — “15 key points for buying high-performing stocks” through a systematic review of his past practices.

If Graham is a value-based quantitative analyst, then Fisher is a growth quality analyst.

Influenced by previous experiences, Fisher Price focuses on finding growth companies and on the qualitative characteristics of business operations. He highly appreciates the “scuttlebutt” or “vine” tool, which is like searching for major vines on a cluttered grape rack. Through conversations with competitors, suppliers, and customers, he can obtain first-hand information and understand the true operation and strengths and weaknesses of an industry or company.

He advocates selected stocks, centralized holdings, and long-term holdings. Although he also suffered huge losses before and after the financial crisis, he obtained rich rewards by targeting and holding historic big stocks such as Texas Instruments, Dow Chemical, and Motorola for a long time.

Although Fisher himself is very low-key and seldom interviewed, his classic book on the essence of investing in growth stocks has influenced many investors. These include “How to Choose Common Stocks and Uncommon Profits” (Paths to Wealth through Common Stocks) and “Paths to Wealth through Common Stocks” (Paths to Wealth through Common Stocks). These two books can be said to be must-read guides for investors, and they are also highly recommended by Buffett. The former is also a designated textbook by the US Investment Management Institute.

15 Key Points of Philip Fisher's Stock Selection

What kind of stock selection methods does Fisher Price have? The most classic ones are the “grape vine” tool mentioned earlier and the “15 key points for buying high-performing stocks.”

1. Let's talk about the “Vine” tool first.

Fisher Price did it himself. He visited the company, talked with management, interviewed employees and customers, learned about their views on the company and their experiences with products and services, and often went to competitors to ask their opinions about the company, including what they liked and disliked.

Philip Fisher's son Kenneth Fisher is also a famous investor and entrepreneur. He has visited many companies with his father. He discovered that his father always did his homework before visiting and printed out the questions on paper in advance.

These questions can come in handy when the conversation is cold, and these preparations can also let the company visited know that he is fully prepared. However, the really good questions he asks are often not prepared for, but rather come out of his mind in the process. Perhaps this is an exemplary presentation of “vines,” that is, being prepared while remaining resilient.

The effect that can be achieved through this approach is actually not only about grasping more direct information (which may even challenge some information provided by the government) and better evaluating the company, but also cultivating a sense of ownership of the stocks invested in and truly investing in long-term growth.

For ordinary investors, it may be difficult to directly interview management, but they can learn more about the company and management by watching management interviews, reading relevant reports, attending performance briefings, and through online forums and user reviews, etc., and this is also quite important. Of course, this also tests everyone's ability to discern information.

2. Let's take another look at “15 Key Points for Buying High-Performance Stocks.”

Son Kenneth Fisher also found it very useful when it came to his father's 15 key points for stock selection.

These standards focus on several aspects.

The first is the product aspect. For enterprises, what exactly can they provide to customers is an essential foundation for value and growth. Well, this relates to whether the company's current products and services themselves have market potential, and whether the company has the motivation to continue to innovate, develop new products, and sufficient investment in R&D to ensure that the company has sufficient competitiveness in terms of products.

Having a product alone is not enough; management is also very important. Just imagine, if a company has good products, but without a good company culture, sales team, execution plan, etc., then it may not be possible to successfully deliver good products to more customers.

Well, the management aspect includes: whether the management itself is honest, honest and honest, what is the relationship between executives, what is the labor and personnel relationship, what is the depth of management, and how is the sales organization just mentioned.

Good management can make all parts of the company operate well, stimulate employees' loyalty to the company, maintain their enthusiasm for production, and serve the company and customers with an open attitude.

Of course, the profitability and cost control of the product itself are also important factors in evaluating whether a company can have a competitive advantage in the industry.

If you want to select growth stocks, look at growth industries first

In addition to product profitability and cost control, it is difficult to measure whether the company has promising products and whether it has higher than average management capabilities through quantitative indicators. Why not say that Fisher Price is a quality analyst!

Although it is difficult to quantify, narrowing down the scope by screening growing industries first will save some effort, just like choosing lakes with more fish resources first in order to catch more and more fish. Several industries are mentioned in the book “Fisher Price on Growth Stocks” (published in 1960), which are explained in detail below.

1. electronics industry

At that time, the electronics industry had a rapid growth trend, and the best electronics companies could achieve an annual growth rate of 25%-45%.

However, because the electronics industry's requirements for production facilities are low, and people expect large-scale government procurement in the future, many companies can carry out small-batch production with low initial investment. Coupled with the fact that the entire industry relies heavily on new technology and products, it is difficult for companies to establish a stable and continuous competitive advantage.

In this context, it is more important for the electronics industry which individual stocks to buy than when to buy them. The company with the best management is likely to be the biggest winner. Excellent management helps the company to form technical advantages for core products through good R&D organization; helps to apply technology and capabilities accumulated in military business to civilian business; and also helps develop strong marketing capabilities.

2. pharmaceutical industry

In the face of relentless diseases, people desire more effective treatments, so most technological breakthroughs in the pharmaceutical industry may create a huge market. Because of patent restrictions, top pharmaceutical companies have wide moats.

However, the risk is that pharmaceutical companies' sales may be very dependent on a few key products, and once one or two major products fall behind, it may pose a threat to profits and market value. Coupled with the special process and cycle of drug approval, competitors may have left enough time, and doctors are also looking for better treatments other than drugs.

In this context, for such companies, attention should be paid to the ability to continuously develop new drugs and establish a new drug market. This also depends very much on the management capabilities of pharmaceutical companies.

So what are the characteristics of this type of stock in terms of price? Overall, it is quite volatile, and investors especially need to calmly grasp the timing of entry.

For example, since the pharmaceutical industry is relatively less affected by the economic situation, such stocks may be overvalued during times of economic depression. However, if the government interferes with the prices and profit margins of such companies, it may affect investors' preferences for such stocks. The sharp drop in shares of some companies may also cause the market to worry about the entire industry. By the time new drugs are introduced, the market is likely to reinvigorate again.

3. Chemical industry

In the 50 years leading up to the publication of this book, the chemical industry grew significantly. At that time, the annual growth rate of the chemical industry was significantly higher than the annual growth rate of the US economy, and the fastest growing companies reached more than 7.5% per year.

At the time, if the chemical industry launched a new product, it could bring considerable benefits. However, the challenge is that from small-scale factory construction experiments to large-scale factory construction, to production of all aspects of basic chemicals, intermediate products, and final products, the cycle is very long and requires high human and financial investment, and the barriers to production technology are also very high.

As a result, it is difficult for the industry to have new entrants with strong competitiveness, and established chemical companies that are constantly improving have become the target of investors' attention. Some established companies will enter the petroleum and natural gas fields (similar to the chemical industry in terms of production technology), forming new advantages in raw materials, etc.

It should be noted that the chemical industry is clearly cyclical, and chemical stocks will also fall during economic recessions. However, since surplus products (including basic chemicals and intermediate products) can be used to upgrade old products and launch new products, the recovery is likely to be faster.

So when do you buy these stocks? Fisher Price believes that some temporary high costs lead to reduced profits (such as abnormal expenses due to the establishment of new plants, rising sales costs due to the launch of new products, etc.) can be fully utilized. Also, if you can be ahead of the market as a whole and be aware of the management improvements of certain chemical companies, you may be able to benefit more from the growth of such companies, but this is somewhat subjective.

4. epilogue

Going back to today, decades later, the above assertion probably doesn't fit the current environment. Therefore, we need to remind everyone that we should not blindly pursue successful industries in the past, but rather pay more attention to industries with the potential for continuous growth.

However, it is easy to see that behind these analyses, there is an in-depth understanding of these industries, and it also reflects the importance that Fischer places on qualitative research, and his “grape vine” tools play an important role in this. However, when investing, some people prefer quantitative analysis, while others prefer qualitative analysis. This has a lot to do with personal style; the style that suits you is the best.

It can also be seen from these assertions that an industry has no growth potential. Apart from looking at the growth of financial data, whether it is technology-driven, whether it has technical barriers, and whether management is excellent are very important factors. Moreover, even if it is a growing enterprise, not any individual stock is suitable to buy at any time; trading strategies need to be formulated based on aspects such as economic cycles and stock price fluctuations.

*Note: The images displayed on the screen are for illustrative purposes only and do not constitute any investment offer or guarantee.

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