Fisher follows a thorough bottom-up research process and believes in knowing any investment you have better than others. He chases previous employers, contacts suppliers and evaluates every product line of every firm that passes his initial investment checklist. He is a growth investor, but not in the modern day meaning of buying factor-based momentum stocks. A business analyst not a financial analyst.
Fisher writes in a clear, succinct manner shedding great insight into how to research companies independently. He provides a clear 15 point checklist of what to look for in high-quality, growth stocks that is useful as a checklist before any long term investment:
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? A company seeking a sustained period of spectacular growth must have products that address large and expanding markets.
2. Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely 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? Expert merchandising needed to exceed sales targets.
5. Does the company have a worthwhile profit margin?
6. What is the company doing to maintain or improve profit margins? "It is not the profit margin of the past but those of the future that are basically important to the investor."
7. Does the company have outstanding labor and personnel relations? Happy employees, higher productivity.
8. Does the company have outstanding executive relations? Just as having good employee relations is important, a company must also cultivate the right atmosphere in its executive suite. Pay attention to incentives.
9. Does the company have depth to its management? Fisher warned investors to avoid companies where top management is reluctant to delegate significant authority to lower-level managers.
10. How good are the company's cost analysis and accounting controls?
11. Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition? Understand determining factors for different industries.
12. Does the company have a short-range or long-range outlook in regard to profits? Fisher argued that investors should take a long-range view, and thus should favor companies that take a long-range view on profits.
13. In the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders' benefit from this anticipated growth?
14. Does management talk freely to investors about its affairs when things are going well but "clam up" when troubles and disappointments occur?
15. Does the company have a management of unquestionable integrity?
Full notes to the book are here.
