Another top notch investor who was at the same time responsible for the birth of a different form of investing is Philip Fischer, who is considered to be the father of growth investing.
Fisher got his start out of Stanford Business School, when he dropped out in 1928, a year before the market collapse of 1929. He launched an investment firm at the age of 24, and focused on investments in Silicon Valley, especially in companies that invested a lot of capital into research and development as well as building innovative products.
In his mind, these were the types of businesses that could generate spectacular returns for a shareholder. Fisher’s assessment of a business wasn’t merely based on numbers and charts, he placed a great emphasis on a firm’s management and ability to deal with incoming problems. He also attempted to comprehend the organizational culture of a company.
Fisher was very disciplined, and had developed a 15 point checklist which he went through before making an investment. The checklist will be attached to this lecture as an article. What’s interesting about Philip Fisher is that he began his investing career as a value investor, much like Warren Buffett and Benjamin Graham.
Through the years though, he began to refine his style, especially after the stock market crash of 1929. After these events, he felt that some stocks might be incredibly cheap for a good reason, and that many of the accounting tools that value investors employ do not take into account any extraordinary problems a company might have.
As such, Fisher focused on any and all of a company’s growth factors. So essentially, while value investing involves finding high quality companies that are undervalued by the market, growth investing takes place when betting on stocks that are in the midst of moving higher.
The key difference between both is that growth investors don’t mind paying a higher price for a good business. So, what did Fisher look for in a company? Well his approach is a little tougher to describe than that of a value investor since it relies more on his personal thoughts on the future of a particular industry or technology.
In general, however, there were a few factors we would pay close attention to. Much like Warren Buffett, he would seek out firms with great management. As you can start to tell, management is vital to the success of a company. That said, unlike how a value investor might attempt to find more predictable and stable management, a growth investor will focus on how innovative management is. A good example could be Steve Jobs, who pioneered many of Apple’s best-selling products, including the iPod and the iPhone.
To justify high growth, management must push out and release novel products. As mentioned earlier, Fisher liked companies that put money towards research and development. Without investing money towards the future, how else is a stock meant to perform well? Probably the key tenet of the growth investing philosophy is growth itself, especially growth in earnings. So higher earnings come about through more revenue and less costs.
A company whose margins are low are especially of interest. Low margins means that it doesn’t cost a lot to produce a product, which is essential for high profits. As we talked about in a previous lecture, earnings are another feature that drive stock prices up. Fisher would only invest in companies that he believed could grow earnings and most importantly, sustain that growth.
Probably Fisher’s most famous investment was in Motorola, a company that I am sure you must have heard of at least once in the past. Motorola was an American multinational telecommunications company that focused on producing telephones and wireless technologies. The company was recently broken up into two separate firms.
The business was founded in 1928 and back then it focused mostly on creating televisions and radios. Due to its high growth, Fisher became interested and initially invested in the company in 1955, over 61 years ago. Prior and after Fisher’s investment, the company grew its revenue at a stellar pace of over 68%.
Motorola continued to innovate throughout the next few decades after Fisher’s investment and ended up becoming one of the largest telecommunication companies in the world. If Fisher held on to this stake until the year 2000, he would have generated a 6000% return. This points to the importance of long-term investing.
This is something that Warren Buffett agrees with. Investing for the long-run presents the greatest opportunities to generate high returns. Short term investing, in other words trading, can be detrimental to an inexperienced market participant. As such, we can learn much from legends such as Philip Fisher and Warren Buffett who were able to do so well for so long.
Speaking of Warren Buffett, Buffett himself has said that his investment philosophy is 15% Fisher. So in the end, even though Philip Fisher chose to follow the route of growth investing over value investing, he became incredibly successful and has influenced countless individuals.
His approach of picking great businesses with high quality management and high earnings growth is very similar to that of a value investor, even though his focus would be on growth instead of price.
There is no set rule for doing well in the markets, but Fisher just proves how it doesn’t really matter what strategy you follow, as long as you are disciplined and look for fundamentally good businesses. So that’s all for Philip Fisher.