Both believed strongly in fundamental analysis, insisting that investors should carefully study companies rather than rely on tips or attempts to time the market. They also emphasized a margin of safety mindset—while Graham coined the term, Fisher similarly sought to minimize risk by deeply understanding the businesses he invested in. Another common thread was their insistence on investor discipline, encouraging patience, rationality, and the ability to resist emotional decision-making in order to achieve long-term success.
Differences (Cigar butt vs Scuttle butt)
Their approaches diverged in important ways. Graham’s philosophy was rooted in value investing, focusing on buying stocks priced below their intrinsic value, even if they were “cigar butt” companies. Fisher, on the other hand, pioneered growth investing, preferring outstanding companies with strong leadership and durable long-term expansion potential. His famous “scuttlebutt” approach involved gathering insights from employees, customers, and competitors to identify businesses with sustainable growth and innovation. In essence, Graham prioritized price and safety, while Fisher prioritized quality and growth durability.
Question 2:
From Benjamin Graham, I would adopt the principle of a margin of safety and his disciplined, quantitative approach to valuation. His focus on fundamentals like earnings and book value helps avoid speculation and ensures capital preservation.
From Philip Fisher, I would take his qualitative lens—evaluating management, innovation, and competitive advantage—and his long term growth mindset. Holding outstanding companies for decades allows compounding to work, blending Graham’s protection with Fisher’s upside
Question 3:
Philip Fisher’s idea of “safety” was rooted in the quality of the business itself, not in buying at a discount to book value. He believed that if you owned an exceptional company with durable growth, strong management, and innovation, you were protected against long term risk.
“The most important qualities of a company are not found in its balance sheet but in its people.”
Fisher did not emphasize margin of safety in the same quantitative sense as Graham. For him, safety came from owning exceptional businesses with durable growth prospects, innovative products, and strong management. His “margin” was qualitative—if a company had unique competitive advantages and the ability to compound earnings over decades, then the investor was protected against long term risk even if the stock price looked expensive in the short run."
Question 4:
Fisher believed valuation was inseparable from the quality and growth prospects of the business. In Common Stocks and Uncommon Profits, he wrote: “The successful investor is usually an individual who is inherently interested in business problems.” For Fisher, the true measure of value was whether a company had the ability to grow earnings consistently over long periods. He emphasized that paying a seemingly high price could still be justified if the company’s future growth was strong enough: “If the job has been correctly done when a common stock is purchased, the time to sell it is—almost never.”
I think Fishers approach shifts attention from temporary mispricing to the enduring economics of the business. While Graham’s strict valuation discipline protects against downside risk, Fisher’s approach highlights the upside potential of owning truly exceptional companies.
Question 5:
Philip Fisher’s checklist of 15 points emphasizes qualitative analysis as below:
• Growth potential: Products/services with long term sales expansion.
• Innovation: Commitment to R&D and product development.
• Market leadership: Strong competitive position.
• Profit margins: Ability to sustain or improve margins.
• Sales organization strength: Effective distribution and marketing.
• Industry relations: Good standing with suppliers, customers, and regulators.
• Long term outlook: Management focused on sustainable growth.
• Capital needs: Ability to fund growth without excessive dilution.
• Profit reinvestment: Smart use of retained earnings.
• Scuttlebutt method: Gather insights from employees, competitors, suppliers, customers.
I would add “Digital resilience” to this list, In the age of software is eating the world, important to have Cyber security, data strategy, and adaptability to tech disruption checked out.
Question 6:
My top favourite criteria would be “Market leadership: Strong competitive position.”
In the book, "Competition Demystified", Greenwald stresses that strategy boils down to whether a company can prevent competitors from eroding its profits. Market leadership is only meaningful if it rests on defensible barriers Bruce Greenwald reframes market leadership as not just being the biggest player, but having durable competitive advantages rooted in barriers to entry. He argues that true leadership comes from controlling something rivals cannot easily replicate—like local dominance, customer captivity, or cost advantages—not simply from growth or size.
I also follow the The Morgan Stanley Global Franchise Strategy that invests in companies Characterised by their powerful intangible assets, notably brands and networks, these companies have high and stable returns on operating capital & can be sustained for the long term.
Question 7:
Fisher style screens would be
• Revenue growth: ≥ Industry CAGR with no decelaration over 5–10 years
• R&D intensity: consistently above industry median
• Gross margin: improving over 5+ years, Operating margin: trending upward
• ROIC (Return on Invested Capital): ≥ 15% and above cost of capital
• Growing Market share: Ideally Top 3 in industry or niche
• No Equity dilution or limited new issuance
• Employee satisfaction proxy: Industry eg:- Glassdoor rating ≥ 4.0/5
Question 8:
Trent (India), part of the Tata Group, operates Westside and Zudio as core formats in lifestyle retail, has a strong foothold across mid-market and value fashion—two of India’s fastest-growing retail segments. Its scale, brand architecture, and execution discipline make it a compelling fit with Fisher’s emphasis on durable growth, management quality, and market leadership.
Max Healthcare (India) is another strong Fisher style candidate because it combines market leadership in Indian private hospitals, consistent growth, disciplined margins, and credible management. It fits several of Fisher’s 15 points like
1. Max Healthcare’s has large TAM given rising demand for private healthcare in India.
2. Management continues to expand formats and invest in advanced clinical technologies to sustain growth.
3. Its extensive hospital network and brand recognition provide a powerful sales and distribution system.
4. Profit margins are worthwhile, with management focused on sustaining efficiency and improving returns.
5. Depth of management ensures the business is not dependent on one or two individuals.Management maintains a long term outlook, reinvesting in capacity and technology rather than chasing short term gains.
Question 9:
Lack of Stability : Growth companies are often relatively small and therefore unstable, Graham warned us on this. Fisher’s approach is excellent for identifying potential compounders, but it exposes investors to instability in small growth firms and subjective judgments.
High Valuation : Once the market recognizes a company as a “Fisher style growth stock” (durable growth, strong margins, innovative management), it tends to get bid up aggressively. They have many biases including Scarcity value, Compounding narrative, Institutional crowding, Momentum effect.
To quote Steven Crist (from Michael Mauboussin’s work) in horse racing, everyone wants the obvious winner. If a horse looks strong on paper—great past performance, good trainer, favorable odds—bettors pile in. The problem is:
• The horse may indeed win, but the odds collapse because everyone sees the same thing.
• Even if you’re right, the payoff is small because the market has already priced in the horse’s strength.
Question 10:
Fisher’s style is deep, concentrated, qualitative, business focused, long term, and growth oriented. His uniqueness lies in combining scuttlebutt primary research with concentrated long term holdings
This is an interesting question with some subtlety, and to understand why I think this read on, but the summary is be aware of how the margin is being built, and whether it is being driven by externals like the cost of funding requiring the company to charge a lot, or the demands of investors, or strategically from within to maximize value over time. Low margins and high consumer surplus can be a formidable way to start a company, Amazon and Google both did this in the early days.
To understand this it is important to look at Consumer Surplus and Value added as concepts. Economists talk about this, but analysts not always so much, and it's a weakness that can lead to serious error.
Definitions:
Value added (Margin) = price − Cost of purchased inputs (costs)
There is a straightforward relationship between value added and margin, the more value added, the higher the margin is.
Consumer surplus = perceived value - price
Perceived value is the maximum price that the consumer of the product or service would be prepared to pay, and the consumer surplus the difference between them. The consumer surplus is the value the company is giving to the customer in return for their purchase.
Putting these equations together gives:
Margin = Perceived value - consumer surplus - costs
Which means margins are built by driving down costs, taking as much consumer surplus as possible and raising the perceived value.
Classic Playbook:
Invest in marketing and advertising to improve the perceived value of a product as well as building awareness of it - cars, cosmetics and fashion are built around this.
Use price discovery to take as much consumer surplus as possible: Salespeople incentivised to sell at as high a price as possible, price discovery, (are you prepared to pay extra for organic coffee), dynamic pricing (think airline tickets being hiked on big holidays), tiered pricing (Silver, gold and platinum service at different price points) and incremental price rises for tied in customers.
Invest in manufacturing or delivery of services at scale to drive down costs.
If companies do this too well, and push the margin too far it can get dangerous:
consumer surplus is reduced to the point that the customers no longer feel the product is good value, they start to feel price gouged, exploited or manipulated and begin to look for alternatives and/or complain to regulators.
Cost reductions lead to shoddy products or poor service
The resulting reputational damage can negatively affect the perceived value.
Put a mix of these together and in extreme cases it can be catastrophic. look up "Gerald Ratner" or "benzene in Perrier" for some of the most iconic collapses, but there is a more general lesson that margins must be built with an eye to leaving a reasonable amount of consumer surplus for the customers benefit.
Practical questions:
Try and estimate the consumer surplus for any product or service of a company that you are researching as you see it. The answers are vital if you want to gain an insight into the future path of profitability for a company:
If your phone manufacturer put up the price of the new model 10% would you upgrade when you needed to or switch to another brand? Or complain to a regulator? What about 50%
If your car insurer did the same thing would your response be the same?
If your monopolistic water supplier did the same what would your response be?
If Google lowered the visibility of your website so it never appears in searches unless you paid more for search what would your response be?
It is a problem for listed companies, with the relentless focus on quarterly earnings. Many of the best companies manage this by leaving plenty of value for the customer in the early days, which allows for plenty of years of incremental margin growth, and helps with early organic growth and issue free regulation. Google is a textbook case of this. Type "How has google managed its pricing? Does it attempt to maximise margin or leave lots of consumer surplus? How has its strategy changed and evolved over 25 years?" into Chatgpt for a perfect lesson in how this is done.
One of the reasons that private equity often does not deliver as well as it should is that it focusses on squeezing as hard as possible to generate cash, and forgets how much long term damage is done if the company is no longer adding much value to its customers because the consumer surplus is so low. It tends to result in disappointing growth and a failure to take advantage of a strong market position due to short term thinking even though the company appears to have the pricing power to increase margin short term.
1. So as far as differences go, Fisher has much more of an emphasis on scuttlebutt. Or simply that which isn’t readily available within the financial statements. Of the financial statements it seems like Fisher would put more of an emphasis on the income and cash flows. While Graham would put much more emphasis on the balance sheet. There are further differences though in how they would interpret some of these financial statements, Fisher doesn’t really seem all that enthusiastic about the trailing five year earnings per share. He speaks of the fundamental fact that the research and growth capital expenditures are going to make the next five years very different to the past five years.
2. So it was the closing chapter of Security analysis where Graham talks about being receptive to investment ideas from any means by which they are introduced to us i.e. the newspaper, a friend, etc. etc. In comparison Fisher doesn’t seem to express that same receptivity, in his 15 points essentially he’s reducing down the data set pretty aggressively, but with good reason. I would say that I would want Graham to be my first gate, which is too say that there are a plethora of investment opportunities that may be hidden in plain sight if I’m receptive enough to see them. However, my second gate would be Fisher, which would ideally be much stricter on the type of companies that pass through. This gate would require more work because the distinguishing of maintenance capex and capex isn’t always clearly delineated in the financial statements or the shareholder letters. Sort of like Amazon in its early days when they had razor thin profit margins but if you took out growth capex it had high single digit profit margins.
3. I’d say Fisher’s margin of safety is being able to purchase a company with a strong likelihood of above average growth in the near future that isn’t yet reflected in the market price. Essentially it’s a temporal difference one looks to the past the other looks to the future.
4. It seems to me that valuation from Fisher‘s point of view, relies heavily on insight into the growth and stability of margins, the ROI on growth cap ex, as well as the company’s capacity to expand into new markets or new products, thus increasing sales.
5. In looking over my notes, there’s really only one point that I think is worthy of special mention. It’s in regard to point 7: the paragraph that begins “nevertheless, beyond these general figures there are a few specific details the investor might notice...” Before I became interested in investing, when I was still developing marketable skills I always felt like companies that took care of their employees as well as they try to cater to customers, in general seem to do better than companies that treat their employees as expendable. Fisher puts it in such a way that he emphasizes sacrificing some small degree of margin to maintain good labor relations (union or not.). Ultimately, I emphatically believe in this point because I think it is an expression of thinking long-term rather than short term. It may be the company’s brand, it may be the product that a customer is seeking, but ultimately it’s the efforts of the staff that actually keep a business running day by day.
6. Leaning on my previous answer, my top three would be: 7, 9 and 10. Seven I’ve already explained. Number nine is a bit of a variation on the same thing. When management is a one-man show, that’s essentially the same issue as 7 but contained to the C suite. Obviously every company needs leadership who are ultimately responsible to make the final call, however a certain degree of democratic ideals colors my perception of this. Finally, I think 9 makes a good point. It’s absolutely necessary to keep good books in order to develop insight from those books which can help increase the precision of a company‘s capital allocation strategies.
7. I think in order to really generate candidates from a Fisher point of view I’d probably start by thinking of it in terms of sectors. Trying to determine what sector has the capacity for innovation, then trying to determine which companies within that sector have a high likelihood of success of innovation. Finally, then determining the individual characteristics of that company to consider whether it would become a worthwhile investment.
8. -
9. Ultimately, I think Fisher is very optimistic, maybe not to a point of fault but certainly to a point that necessitates a dose of caution.
I would say they are completely at odds. Graham, like Buffett, focuses on the numbers of a business. Fisher’s scuttlebutt method is at direct odds with this, often relying on insider sentiment and understanding of the business. In my opinion it is a more humble approach. Instead of understanding the business yourself, you become good at coaxing out valuable candor about their business from people close to the company who do.
Question 2:
I tend to agree with Fisher’s method of trying to gain insights beyond the financials. Nowadays much of this information is public and more heavily scrutinized by investors, so it is both easier to gather a lot of information and harder to disregard the signal from the noise. I think the focus on growth has been a very effective strategy, but shares a higher correlation to the market dynamics as a whole. I would have a portfolio with a majority geared towards reasonable future growth as I do agree it is easier to get things more right from an upward trend than a business turnaround. Much like momentum positive or negative it is hard to change motion.
Question 3:
Qualitatively rather than quantitative margin of safety. An exceptional company priced at an above average fair price would offer a margin of safety to Fisher. Graham relies more on the financials to identify a margin of safety. Fisher might use this margin to conservatively estimate growth into the future.
Question 4:
Unlike Graham who is price focused with a secondary thought to quality, Fisher approaches from a quality and longevity first prospective, caring secondarily about reasonable prices. He even insists on strict discipline to not sell when great companies appear overpriced and ripe for profit taking.
Question 5:
I like the focus around longevity of a business. I don’t personally want to mess around with tracking a ton of companies and news events. Getting this right seems like a big part of what personal success in investing my money would look like. In this modern day with LLM, I think it would be silly to not have an exhaustive checklist, so I would obviously add a ton of different items together for a checklist.
Question 6:
Moat ensuring longevity with big durable market runway
Exceptional labor relations (Are employees well paid and satisfied)
Smart and Effective Research and Development
Question 7:
I don’t think you have to generate potential candidates for these types of companies. You probably know some candidates from your personal network. High talent/drive individuals tend to flock to these companies.
Question 8:
I’m already tracking one. Google. I have recently spent a bunch of time trying to understand this business diving deep into their segments including Other Bets. I think long term this business will be successful as they are one of the only profit generating companies with foundational LLM models. Scuttlebutt from friends at this company is an exceptional focus on letting smart people free to indulge their ideas. Compensation and employee performance reviews are meritocratic. I think if the R&D of this company was more focused into commercially viable products which I think is inevitable as management changes over, it will be incredibly lucrative. Waymo is extremely exciting & hard to break out of their revenue, but they have outside investors willing to pay a lot to participate in this venture. Youtube metrics are staggering with more and more playtime on TVs (hard to quantify as they don’t release a ton of info on this).
Another company I track heavily is ASML. I myself am a former employee and think the company is exceptionally organized. They have great organization and great talent of embedded engineers at this company. Their focused R&D is miles ahead of any other competitors and they have a money funnel pointed at a very specific problem. Customers with their high throughput silicon tracers are quite literally printing money and employ such sophisticated engineers at companies like TSMC that are even more expert than the company that manufactures the machines. They are providing feedback in a positive flywheel that only grows ASML’s moat into the future.
My third pick would be NVDA or MSFT. Having visited NVIDIA hq Voyager I was beyond impressed with their engineers. They are relentless with their Speed of Light Ethos for solving complex problems. Known for exceptional labor relations they will continue to win in my opinion.
Question 9:
Disregards a ton of companies and enters into an already crowded and picked over universe of equities. As markets get more efficient and multiples expand on these great businesses compounders don’t generate as high returns as in previous decades.
Question 10:
Depth of Research. Deep scuttlebutt heavy focus.
Portfolio Concentration. Concentrated.
Qualitative vs Quantitative. Qualitative.
Business vs Security Analyst. Business.
Time Horizon. Very Long.
Sector Focus. Heavy R&D growth.
Geographic Focus. US.
Risk Tolerance. Moderate to High.
Long/Short. Long only.
Question 11:
Evaluate [COMPANY] using Fisher’s 15 points with a Strong/Moderate/Weak/Unknown verdict, add a reverse case for each point, explain the long-term growth runway, list 10 scuttlebutt questions that would validate or falsify the thesis, and give a 5-year Bear/Base/Bull narrative tied to innovation, management quality, and market expansion.
1. I see overlap between Fisher and Graham in that both want to understand a business and avoid permanent loss. Where they differ is in what they focus on. Graham leans more on numbers and cheapness. Fisher leans more on long-term growth and the qualities of the business. Graham is fine owning average companies at good prices. Fisher wants exceptional companies even if they don’t look statistically cheap. Both approaches can work depending on what you are trying to do.
2. From Graham I’d keep the discipline of having a margin of safety and paying attention to the balance sheet. From Fisher I’d keep the focus on long-term growth, culture, and management integrity. For my own approach I’d probably blend the two. I don’t want to own weak balance sheets, but I also don’t want to miss great compounders.
3. Fisher’s margin of safety mostly comes from the strength of the business. If a company can grow consistently for many years and reinvest at good returns, that provides its own cushion. Graham’s margin of safety comes more from buying at a cheap price compared to conservative value. Fisher trusts the business. Graham trusts the numbers. Both want protection, but they go about it differently.
4. Fisher approaches valuation by looking at whether the company can grow earnings for a long time and reinvest at high returns. He is not formula-heavy like Graham. I think this works for certain kinds of companies where the real value lies far in the future. It just requires judgment and patience.
5. I like Fisher’s checklist. It forces you to think about things that don’t show up in the financials, like management honesty, competitive position, culture, and the company’s ability to keep improving. If I added anything, it would be something on capital allocation since that matters a lot today. I don’t think I would remove anything.
6. The three most important items to me are:
Superior growth runway supported by real competitive advantages, because that drives long-term compounding.
Management integrity and openness, because nothing else works if management can’t be trusted.
Ability to reinvest capital at high returns, because even a long runway is wasted if the company can’t turn retained earnings into more earnings.
These three hit durability, trustworthiness, and compounding, which is the heart of Fisher’s thinking.
7. To find companies Fisher might like, I would start with industries that have long-term tailwinds. Then I’d look for companies with high margins, high returns on capital, and consistent reinvestment. I’d read transcripts to get a sense of culture and management. I’d avoid weak balance sheets or businesses that cut corners.
8. Three examples that seem to fit Fisher’s preferences are:
Constellation Software, because it has a long history of disciplined reinvestment and recurring revenue businesses.
CME Group, because it has a strong competitive position, high margins, and durable demand for its products.
Bakkafrost, because it has long-term industry tailwinds, strong biological advantages, and a culture that reinvests for growth.
All three have moats, honest and focused management teams, and long runways, which is what Fisher looks for.
9. The weaknesses of Fisher’s approach are that it can lead to paying too much if growth slows and it depends heavily on correctly judging management. It also takes time to understand the qualitative side. You also need patience because these companies rarely look cheap in the short run.
10. On a style map, Fisher sits very long-term, probably a 10. Low turnover, around a 1 or 2. Moderate diversification, maybe a 3 or 4. Strong emphasis on quality rather than cheapness, around an 8 or 9. Heavy reliance on qualitative work, maybe a 9 or 10. Moderate reliance on long-term expectations, maybe a 6. High dependence on management quality, around a 9 or 10. Medium risk tolerance since he avoids weak balance sheets but accepts price volatility, maybe a 5.
11. A useful AI prompt would be:
Act as an expert on Phil Fisher’s investing approach. I will give you a company. Evaluate it using Fisher’s fifteen points, focusing on growth potential, competitive advantages, culture, management integrity, and reinvestment ability. Give me a balanced view of strengths and weaknesses and tell me whether it resembles the type of long-term compounder Fisher would consider attractive.
Question 7: If you were trying to generate potential candidates for the type of companies that Fisher is looking for, how would you go about it?
Begin by narrowing the field: the best approach is to start by filtering out companies that don't meet the objective criteria: sector, margin and some current growth.
Then look through the list for evidence of an attractive product offering - his first criteria.
Once you have this much reduced list, the real work begins, looking at the management, the sector, the return on capital, and how good the companies products really are.
Question 8: Find 3 potential investment candidates that you think currently fit Fisher’s criteria and explain why they do so. Please go in some depth in your analysis/explanations for why they are a potential fit using Fisher’s criteria.
Alphabet
TSM
ASML
these companies meet Fishers criteria, in fact they completely crush some of them. I'm not going to go into full detail, because it would require a post 10 times larger, but i will pick up on the 3 main principles I picked above:
1)Does the company have products and services with sufficient market potential to make a sizable increase in sales for at least several years?
Yes, so much yes. Alphabet is currently taking the lead in AI, having a wildly dominant position in global search advertising revenue, and on that built a huge hosting business and a phone software business. TSC is the only company in the world to be able to make the current generation of chips. It is way ahead of its competitors, both in scale, skill and yield, which Fisher specifically mentions as advantages. ASML the only company to make the machines to make these chips. ASML provides detailed guidance on sales and margins until 2030 and no one seriously argues with them, because they are already almost a done deal given the size of the order book and the lack of any credible competition. The moats on these 3 companies are truly huge, bigger I think than Fisher could have ever dreamed of. For example, it took ASML 14 years and 10bn of research spending starting in the mid nineties to develop the current resolution of chip manufacture. The two others trying it gave up in 2008 saying it was too hard. That's a big moat. The money would be easily achievable, but trying to catch up that much time is not. Are they stopping? No, they currently invest 5bn per year on the next generation tools and improvements in the current generation and the ecosystem around it.
2)Does the company have a management that is determined to continue this? Yes, all have brilliant proven track records, and it helps that they can pay their employees exceptionally well from their huge margins to continue that virtuous circle.
5) Does the company have a worthwhile profit margin?
Alphabet - 30% net
TSC 56% gross, 40% net
ASML 51% gross, 26% net
These are massive margins on such large companies.
And finally are there further areas they can move into? Yes, and not just AI. Driverless cars, cloud software, internet of things, quantum computing, robotics and supporting various forms of cryptocurrency and other distributed ledger software applications. All of these have huge growth potential for the future, and all will be using chips and software to run on those chips of increasing scale and complexity. Some will disappoint, but I'm certain some will become huge, and engender further spinoffs.
These are not early stage plays in one sense, but the future is still incredibly strong for companies in this sector, and therefore I think still match his criteria. Nowhere in his 15 principles does it say that it has to be small and early stage, just have a very big future compared to the present and the companies in a strong position to benefit from this growth.
The problem? How much should you pay? All are fiercely expensive, and the valuations huge even if the current rosy projections turn out just as predicted. And because of the difficulty of matching supply and demand, the industry is high growth, but very cyclical, which can hammer profits and share prices in the short term. Applying Fisher's just buy it when you find it policy would have yielded spectacular results in the last few decades, but could easily disappoint for a long time if things go wrong from here.
Question 9: What are the weaknesses of Fisher’s approach?
There are two big weaknesses. The first is how hard it is to do. It was always difficult even in his day, but now, with the size, scale complexity and defensiveness of modern large corporations it's very much harder. To gain the level of insight that he requires for his investments is extremely labour intensive. Getting access and honest opinions from key staff is harder these days than ever. Key people don't answer phones, agree to meetings with random outsiders, or go off to trade fairs and talk freely about their businesses in the way that they used to. Executives are well trained to say the right things in interviews, and annual reports run to hundreds of pages of carefully crafted, not always very useful statistics. On the other hand there is plenty of public information touted by analysts, substack writers, gurus and private investors. The trouble is that it is often very superficial and low quality, and adds hugely to the noise.
His second weakness is that he does not pay enough attention to quantitive measures of the value of a company. In the first book he basically says buy a great company at pretty much any price. But, he even admits it as a mistake that he made himself: "In this case, disappointing performance was the result of being seduced by the excitement of the times into paying and unrealistic initiation price."
He tries to address this in his "The fourth dimension" chapters. It's and interesting read with some good observations, but it has the same feel as value investors adding quality to try and address the fundamental weakness of a pure value approach. He knows that you can't really ignore the market and the price of a stock, so he gives some useful pointers to address the issue, but not the fundamental one that you actually need to work out a real value, rather than just accept the going rate offered by the market.
Question 11: Come up with an AI prompt based on Phil Fisher’s approach.
A simple one works well in Gemini 3.0
identify 20 companies with the highest barriers to entry, 15% growth rate per annum and net margins over 25%.
My 3 choices come in the top 10. Note one of Graham's observations is that to have achieved great numbers like these the management has to be excellent, so there is no point in counting this benefit twice, or indeed trying to filter for it too hard for proven large companies
For smaller ones it's better to use a stock data platform for the initial filters, then start digging from there.
This is slightly an apples vs pears question, how exactly do you measure depth of research? Whatever the answer is it's not metres.
In my head I imagine Ben Graham sitting quietly at his desk with a calculator, carefully working through company numbers in depth, looking at the notes to the accounts and hunting for the warning signs of manipulation of the figures. In those days this was a manual, slow process, and because accounting standards were weaker there was more checking to do. In his memoirs, Graham admitted that since early adulthood he had “no single chum or crony.” and he struggled with personal relationships.
By contrast I see Fisher doing the desk work of understanding the company, including its financials, and then picking up the phone and going out to talk to people. There is no evidence of how much he does this that I could find online. He gave very few interviews, and his son said "he was socially ill at ease always, and insecure" but he could not have followed his own recipe for success if he had not. I suspect that he was much better when focussed on finding out what he needed to know, rather than general chat. This kind of networking: visiting, and talking to principles, engineers, salespeople and managers is very time consuming. It requires tenacity of a different sort, and the ability to communicate well, understand what you are being told in detail, and asking the right follow up questions, often on the fly. In my experience this kind of understanding is much slower, and requires very serious effort, and there was no ChatGPT to provide neat summaries of markets or understanding distribution models to help speed it up. It's particularly difficult to find out whether a research project is likely to yield a useful marketable result as he himself says in his book. For me this makes fisher the deeper researcher. One simple piece of evidence for this view is that Graham typically recommends 10-30 stocks, and for a more aggressive speculative portfolio at the top end of that. Fisher recommends less than 10 and focussing on the very best ideas.
2. Portfolio Concentration (concentrated to diversified): 1 -- I'm not sure how concentrated investors get, but he advocated being diversified by sector and risk (not numerical quantity of companies), with a range of 5-10.
3. Quantitative vs. Qualitative: 8 -- cared a little about margins, revenue growth, and capital efficiency over many years (not just current)
4. Business Analyst vs. Security Analyst: 2 -- minor focus on capital structure and dilution risks
5. Time Horizon (short to long): 10
6. Investing Universe: Asset Class — I think common stocks only.
7. Investing Universe: Market Cap — Any
8. Investing Universe: Sector Focus — Sectors with growth history and growth potential; not cyclical or 'boring', static and old but ones with innovative potential
9. Absolute Return Focus vs. Relative Return Focus — Absolute Return; wanted the highest possible returns, not just reasonable returns
10. Risk Tolerance (low to high): 6 -- Speculation definition is different than Graham; but he still considered himself conservative because he made framework for what he believed to be conservative and held himself to it
11. Bottom-Up (micro) vs. Top-Down (macro): 2 -- Company focused, but aware of the influence of interest rates and inflation
12. Financial Leverage (no debt to any): 5 -- Prefers less debt, rather they be funded by their own profits, but okay with debt because he's confident that they will be so extraordinary that they will get the best rates and be able to pay back.
13. Growth Rate (any to high): 10
14. Activism (passive vs. active): 1 -- Didn't talk about trying to influence management
15. Focus on Earnings vs. Assets: 1 -- Interest coverage and liquidation didn't come up.
16. Technical Analysis vs. Fundamental Analysis: 10
17. Reversion to the Mean vs. Escape from the Mean: 10 -- The extraordinary that compounded forever
18. Management Interaction (none to detailed): 10
19. Primary Research (none to in-depth): 10
20. Long Only vs. Long/Short: 1 -- Buy and hold forever
Question 11:
I used this while answering Q8 as a fast way to find answers/sources to answer points I was concerned about. I also found the more 'dialog' style to be useful once I narrowed down the companies. For example, "How might Fisher think about that debt ratio?"
Task: You are a security analyst trained to find quality companies that meet Philip Fisher 15 points and 3 dimensions of a conservative investor. Do research on TICKER and provide evidence for each point and flag any weaknesses.
Strong Market Potential
• Products/services must allow for a sizable sales increase for at least several years
Functional Superiority
• Lowest‑cost producer or cost‑competitive across most product lines.
• Expert marketing, sales and distribution.
• A clear strategy for reducing costs and expenses to maintain or improve profit margins must be in place.
• Growth in sales must lead to a worthwhile level of profits over multiple years.
• Multi-year history of revenue/margin expansion greater than industry norms.
People Factor
• Management integrity is non‑negotiable: trustworthy leadership, long‑term orientation, and promotion from within.
• Management shows indication of shareholder alignment (own significant amounts of stock, compensation is reasonable)
• Track record of avoiding major ethical lapses or cover‑ups by current management team.
• Positive employee relations and healthy workplace culture.
• Demonstrated ability to adapt to industry changes over time.
• Proven R&D that translates into profitable products
--ANET-- Market demand by AI, cloud and enterprise network is high and growing. 30% revenue CAGR over 5 years is > 3x industry averages. Growth is attributed to taking market share from legacy companies by offering fundamentally different, modern technology and software. They are also providing tech for cloud providers and hyperscale AI data centers. Net profit margins 39% is amazing, consider that industry averages ar~10%. This may be due to the fact that, like Nvidia, they use a contract manufacturing model and plow back savings into efficient R&D and innovation. ROE of 31% is 2x as good as industry average. Regarding reinvestment, they also have no debt funding their growth, which means they are using their profits to fund growth. Management is well recognized, long running and insiders are significant shareholders (17%). Ability to offer new technology demonstrates foresight and willingness to invest in the future. Moat comes from a modular, customizable software that is tightly tied with hardware. Concern: >20% of revenue is from 2 mega customers who will not be buying forever and who have the technical and operation skill to possibly make their own hardware, weaking the moat. This is a mitigation is underway by growing enterprise customers, increasing the reliance of key customers on its specialized networking software, and continued innovation to supply superior hardware, all of which are signs that management is forward thinking.
--ADOBE-- Market demand for digital and even print content creation/production is high and growing. 13% revenue CAGR over 5 years (not amazing, but consistent and revenues are significant to start with). Compared to software industry, net margins of 30% are ~2x higher and ROE of 52% is ~4x higher. Management is well recognized and stable, but management are not significant shareholders. It has historically navigated to a subscription based model early on which brought in stable revenue and reduce piracy costs. Their investment in integrating AI into the product is a sign that management is doing their job and responding to changes in market. Moat is amazing: customers need it (even if they don't always love paying the fee and find some UX features overly complex) because it dominates the enterprise creative space. Concern: They have increased debt by 17% over the past 5 years. Generative AI is shaking up creative space, potentially reduce entry level users need to buy subscription for basic work. Company is putting in substantial efforts to integrate commercially safe AI into their products. 'Scuttlebutt' thought regarding AI threat, as a customer, I've found the integrated AI to be of immense value to my work and a coworker recently upgraded to Illustrator from a competitor's product. Fellow industry members have similar responses: Canva may fill the lower tier needs, but enterprise still needs Adobe level tools. I think Adobe's hold here is going to be very difficult to shake.
--USLM-- Market demand is unending as it is a basic building material in many industries. 5 year Revenue CAGR 18% is 3x industry average. Net profit margin is 35% is also > 3x industry average. They own high-purity limestone reserves, significantly reducing cost to bring quality, higher value product to market. Vertical integration of process to distribution allows them to capture entire value chain. ROE is 24% is 1.8x industry averages. They have no debt, which is rare in mining, therefore growth is self-funded. This allows them it reinvest, as they are doing with their new efficient kiln to lower production costs and boost production. Management has stable, experienced leadership and holds shares. Moat is strong. Regional dominance in a high-growth area (product is expensive to ship in from sources farther away) creates a mini monopoly. Barriers to entry are very high; opening new quarries today is extremely challenging to regulation. 80% of US lime production is owned by 5 companies. Concerns: Cyclical, but to Fishers point, their margins provide a good cushion for bad times; they are a low cost producer and hold a valuable asset. Limestone reserves are in the decades currently, but eventually run out. There focus is regional not global, making the vulnerable to local downturns.
Question 9: I'm concerned about the risks of overly depending on quality as a justification for paying too high a premium and calling it investment when it's closer to speculation. His approach seems vulnerable to over‑optimism and to drawing wrong conclusions from subjective material, without also require some quantitative backing (maybe he did and I missed it). I'm skeptical that we can depend on a company to remain great for decades: people change, moats weaken, product demand can vanish. He mentioned IBM and DuPont in glowing terms, but I immediately thought about how IBM's moat has weakened and about DuPont's PFAS saga. Even if they check all 15 points, assuming amazing growth will occur for multiple decades seems naive. Is that kind of growth really possible in every generation? There are so many variables outside of even a great company's control. Another concern I have is that he embraces paying premiums more than I'm comfortable with. The further out he could predicted future earnings growth, the higher a premium he would pay because he believed the company could meet that valuation. There is the risk in misreading the situation and believing there is way more 'fundamental' growth or value than there really is and the acceptance of premium snowballs out of control. I understand that 'you get what you pay for', but there's a limit as to how far I should take that. One thing I don't remember him discussing is how many years it might it take for a company to reach premium valuation. We might be right in our thesis, but the longer it takes to get there the riskier and harder it feels. His approach requires a high level of confidence in one's ability to discern greatness and access to key people in the company and industry. He also advocated a fairly concentrated portfolio in order to maintain the required level of company awareness. For my part, I am in not in position to develop relationships with management. I’m also not that confident in my abilities that I could be so concentrated. The more concentrated I am, the more costly my mistakes will be.
His approach is definitely highly dependent on being right on your qualitative analysis, or else you just end up paying up a lot for something that isn't all that great and likely losing money.
Similarities: Both do deep research, just in different categories. Graham dug deep into numbers; Fisher into company quality. Both emphasizes long-term investing rather than trading. Each built frameworks they considered conservative, designed to protect against losses. Both were fundamental, bottom‑up investors, primarily company-focused, though they examined different dimensions of a business.
Differences: Graham’s goal was survival and reasonable returns (cautious, defensive); Fisher’s goal was not losing purchasing power and extraordinary returns (optimistic, growth orientated). Graham focused on past earnings and balance sheet strength; Fisher views past earnings as semi-useful, but mostly outdated and emphasizes future growth. Graham was skeptical of weighting the future too heavily, whereas Fisher put so much weight on it that he was willing to pay a premium for it. Graham’s approach is cold, restrictive, mathematical and price-driven; Fisher’s is qualitative, focused on management, competitive positioning, and long-term durability.
Question 2:
From Fishers philosophy, I appreciate the clear business mindset. I can use his observations to help me evaluate companies for the potential profitability and stability. The insights into when not to sell, mistakes to avoid, how to be diversified (etc.) were also helpful. I think going back through this book and formulating a written plan based on some of his directives could be useful for me. Similar to Graham, I am satisfied with reasonable returns rather than chasing extraordinary compounding. I know I will put less time than Fisher did into the deep knowledge of a company and my opportunities for 'scuttlebutt' will be limited. Therefore, I'm better off with Graham-like diversity in number/sector of stocks. Fisher puts more weight on the future than I'm comfortable with. I agree more with Graham's points about our inability to 'predict the future'. While I do put some weight on future growth potential, I'm skeptical about decade‑long compounding assumptions and amazing management lasting. If I bet on the future, I need to be honest that it is a speculation and weight the position wisely. I lean towards a more Graham-like definition of margin of safety: get in undervalued or at fair price.
Question 3:
Fisher emphasizes preserving purchasing power by demanding durable growth prospects to fight the effects of inflation. Safety comes from the company’s ability to grow and that is rooted in qualitative factors: excellent management, competitive edge, ability to expand sales and margins, and longevity prospects. If these fundamentals, the background of all the quantitative numbers, were solid, he was confident the future would be great.
Graham on the other hand emphasizes protection against loss and so focused on minimizing risk. He assumes the future is uncertain, so protection must come from a rock solid balance sheet and a purchase price below intrinsic value. Even in the worst case scenario of liquidation, the investment must be protected against loss by the balance sheet. His margin of safety is rooted in quantitative measures: liquidation value, long term average earnings history, and debt coverage.
They had slightly different goals and thus different ways to get there.
Question 4:
I think his way of determining value makes sense. He recognized that the current price is influenced by market opinion about stocks, industry, and company. He checked whether the view of the market, as expressed by price, accurately aligned with his understanding of the fundament facts about the company's quality and its industry to determine if a stock was priced at a discount, fair value, or premium. He emphasized understanding the background of past numbers and the reasoning for the future numbers. What would it take for the intrinsic value of the company to meet current valuation? Will revenue growth, margins, return on investment, and durability support the valuation?
Question 5:
I think he covers a lot here and I don't have anything to add. His thoughts about what makes a great business resonate. Points 1-6, 11 and 12: Really solid comments about how good leadership is critical in bringing together the research, marketing, production and sales teams to ensure that there is a market for the product/service and that they can actually produce and sell it. Is company operationally efficient? Are they willing to make tough decisions to remain relevant? What can they do that other can't? The emphasis in Point 7, 8, 9 and 12 is also solid because how we treat people is the most important thing in life and it make sense that that would be an important factor to success in business. I believe cultivating employees at all levels and treating vendors and customer with respect and great service increases company value in the long run. There are a few points that aren't as critical to me. Point 10: He noted that point 10 is hard to determine from an investor standpoint, so it's probably a 'nice to have', but not a dealbreaker. As he said, the other points matter more. Point 14: I understand his point, but I wonder if, ideally, good management could be trusted enough to have the freedom to use discretion about what dirty laundry to air and what not too--competitors probably should not know 'everything'. Management might even need to be wise about what they share that's working well!
Question 6:
Points 1, 2, 4. There must be a large, growing market for current product/service. Visionary, competent management is required to unite and direct the team to develop for the future. The company must be able to market, sell and distribute product/service efficiently and with excellence.
Question 7:
Start with the business sectors I understand or industries I want to learn about that have a growing market for their products/service. I would probably use AI to help me understand industry average revenue growth. Then screen to find the outliers (or again use AI to help me search). Once I find some companies, use AI to do preliminary research for possible criteria match to my adjusted Fisher style framework. Pay attention to red flags and pursue learning more about company if it looks promising. Dig deeper into sources, ask questions and do research. If company met goals, it would go on a watchlist for when the price was right.
I wonder how much Fisher's approach lends itself to purely screening on financial characteristics vs. combining quantitative measures with primary research. I believe Warren Buffett (when he was MUCH younger) used to ask CEOs something like "If you could use a silver bullet to kill just one of your competitors, who would it be and why?" as a way of figuring out if there was an outlier player in an industry.
Good point, he’s not quantitative. Maybe more of top down approach on the quality side than the metrics. It could be interesting probe an AI about what industries are growing, their trends/future, which companies are promising, which companies have a good workplace ratings, etc and see what surfaces.
The main similarity is that they both believe in valuing companies rather than securities and that the market can be inefficient in a profitable way. They both also believe in understanding the qualitative factors in pricing a company. Where they differ is in the investments that they would make. Graham is very agnostic about his investments, as long as they are undervalued and not speculations he is willing to invest. On the other hand Fisher is very focused on equities in specific sectors. I suspect a lot of the investments that Fisher made would be considered borderline speculative by Graham.
Question 2:
The two books cover different areas of investing. Graham is focussed on building a framework for deciding what is investable and how it can be valued quantitatively, where as Fisher’s focus is on the qualitative factors affecting the value of a company.
A lot of the investment opportunities outlined by Graham such as bonds and convertibles are either not available to purchase or require buying large amounts making them impractical. I also have intermittent time available to monitor investments and so Fisher’s approach of finding stocks that can be bought and held for long periods of time are more suitable. Also appealing from Fisher’s approach is the depth of research, which fits with my personal preferences. I will definitely use the quantitative methods from Graham and try to achieve the same clarity of thought when assessing information.
Question 3:
I think you could describe both Graham’s and Fisher’s approach to margin of safety as buying securities at a price less than the future results of the company would indicate. The difference would be how they assess those future results… Graham assumes the future of the company to be no greater than the past whilst Fisher attempts to find companies that will be better in the future.
Question 4:
Fishers approach is based on the future earnings of a firm and not directly anchored to its historical earnings. He is looking to make realistic assumptions of how a firm can grow its revenue, assuming it does not make excessive margins. The inputs to these assumptions are very much qualitative as can be seen in his checklist. Fisher is happy to pay a reasonable price for a stock as long as he has confidence in it abilities to grow in the long term, as this will produce a higher valuation on it’s own.
Question 5:
Fishers list is great for understanding the inputs that will likely make a company successful in the future. I think a weakness in the list is due to Fisher’s specialisation in industrial companies. These companies rely on significant R&D expenditure to develop new products and enhance existing ones to increase sales. A more general list would substitute these question for ones based on other growth models, such as those with network effects or the purchase of unique properties.
Question 6:
I think the following are the most important:
- Point 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?” - This is the most essential as Fishers whole investment approach is based around growth.
- Point 15 - “Does the company have a management of unquestionable integrity?” - Essential to reduce the risk of management stealing all the gains.
- Point 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?” - The company can perform as expected but the investment will not as the gains have been shared. This is a company with a low return on capital.
Question 7:
Fisher recommends as a starting point speaking to other well respected investors to understand what they are invested in. Fisher would not get the opinion of just any investor, only those he strongly valued. This is something that is easy to replicate in the modern world as most funds have to publish their portfolios and a monthly investment report, allowing insight into what they are buying and why.
Question 8:
I’ve picked 3 companies from a mutual fund manager that is well known for investing in quality growth companies. They are London Stock Exchange Group, Sage and Nintendo. What’s become apparent is it’s easier to quickly assess some aspects than other…
It’s easy to find out that all these companies have markets with room for growth and management has made great efforts to develop new products through R&D. The products all have a good margin and future growth can be funded through retained profits. This can be obtained from company report although should be independently verified. Previous performance also hints at the operational effectiveness questions that Fisher would ask and to a lesser extent the management questions.
Outside of these limited points I can’t be sure that these companies fit Fisher’s criteria, but they are a starting point. The next sources to check would be news articles for anything related to the management, employee relations, etc, being careful to avoid PR pieces. Legal cases, trade magazines, recruitment sites, company review sites, product review sites and reports from directors previously employers would all also help to gain a more detailed view of the company.
Question 9:
Fishers approach requires a lot of effort be placed on researching individual companies. The implications of this are that an investor must either have an excellent filter for companies worth investigating in depth or focus on a particular sector/industry. Fisher’s choice was to focus on a specific industry.
Question 10:
1. Depth of Research (shallow 1 to deep 10) - 10
2. Portfolio Concentration (concentrated 1 to diversified 10) - 7
3. Quantitative (1) vs. Qualitative (10) - 7
4. Business Analyst (1) vs. Security Analyst (10) - 1
5. Time Horizon (short 0 to long 10) - 10
6. Investing Universe: Asset Class - Equities
7. Investing Universe: Market Cap - Mid to Large Cap
11. Risk Tolerance (low 1 to high 10) - 5 (Fisher doesn’t really mention risk)
12. Bottom-Up (micro 1) vs. Top-Down (macro 10) - 4 (Fisher does try to factor in whether the market is Bullish or Bearish, but doesn’t look at anything outside of that)
13. Financial Leverage (no debt 1 to any 10) - 1 (he doesn’t mention this so I presume he uses none)
14. Growth Rate (any 1 to high 10) - 10
15. Activism (passive 1 vs. active 10) - 1 (I’m inferring he would exit a company rather than agitate for change)
16. Focus on Earnings (1) vs. Assets (10) - 1 (his sole focus is on future earning)
17. Technical Analysis (1) vs. Fundamental Analysis (10) - 10
18. Reversion to the Mean (1) vs. Escape from the Mean (10) - 10
19. Management Interaction (none 1 to detailed 10) - 7 (He only interacts with management after he has done his research)
20. Primary Research (none 1 to in-depth 10) - 10
21. Long Only (1) vs. Long/Short (10) - 1
Question 11:
I think Fishers approach is more open to using LLM’s than Grahams as there is a larger qualitative element to the analysis - synthesising text is what LLM’s do best.
I used the following prompt on Gemini Pro in Thinking Mode on a company I understand well and got acceptable results:
“Using Philip Fishers 15 point list assess the company XXX.”
I can think of two uses for this:
1. Find a list of companies you are interested in, run one prompt for each company, ensuring all the scores are output as numerical values. Combine the results and focus further research on the higher scoring companies.
2. As a check after having researched a company to find any weaknesses in the analysis
1. Both Graham and Fisher focus on not overpaying for an investment and having some sense that cash flows would be consistent or increase over the holding period. While Graham focused on the assets and liabilities of a company, Fisher adds qualitative factors such as quality management decision making and relationships with both customers and employees. This was done primarily using the "scuttlebutt" method of having first hand conversations with management, employees and customers to evaluate how the company actually operates.
2. I think both areas are valuable for asset selection. Qualitative factors are the foundation that the quantitative factors are built on.
3. Fisher would add a less defined area in how the quality of management and their decision making supports the growth of a company. Some of his fifteen factors may be more predominate in valuing a company and some factors may be less important. Graham would base margin of safety primarily, but not solely, on quantitative factors. He would be more focused on the price of a company to the value of its assets and their ability to produce future streams of income.
4. Fisher adds management quality and their ability to adapt to a changing economic environment in a reasonable manner, both financially and in the managerial processes of running a successful company. I think this is fundamental to the selection of investments.
5. HIs checklist provides a well rounded approach to evaluating a company as to whether or not to invest. There isn't anything I could add or remove other than adding how the effects of technology will affect the company.
6. Profitability, quality management and adaptable to growing markets. These are the fundamental factors which cause a company to be able to survive challenging times and be able to grow over time.
7. First look at quantitative factors to eliminate possible candidates that don't fit the criteria. Once the list is edited, look for those with the most sustainable and adaptable growth characteristics as compared to like companies in their fields.
8. CARR - There is a growing need for heating and air services both for those needing replacing and the building of data centers which will need to be climate controlled. It is currently reasonably priced and at the top of its competitive group of companies.
ITW - It is currently reasonable priced and provides the tools needed both to maintain existing and build new buildings.
KMB - It is also currently reasonably priced and has been a strong company for a number of years. It provides items which need to be replaced periodically. It can also grow through acquisition.
9. One could fall into a value trap - a company having a low price for an unknown reason. The company may not be able to sustain itself through challenging times. Their goods and services may not evolve with the economy during a period of change such as we see with technology.
10. Fisher's dimensions would be:
Deep research
Highly concentrated
Combines both quantitative and qualitative
Medium term time horizon - 3 year minimum holding period
Leaves out some sectors
Wide universe of choices
Focus on earnings
Reasonable debt relative to financing activities
Fundamental analysis
More emphasis on quality management
11. Provide a list of 30 companies with growth rates exceeding 10% over a 10 year period, a profitability of greater that 15%, and a debt ratio not exceeding 30%.
Question 1: What are the similarities between Fisher’s investing philosophy and Graham’s? What are the differences?
Similarities:
they both believe in rigorous research with no corners cut, finding companies with sustainable earnings power and a good margin of safety
Differences
Graham emphasizes quantitive research, numbers based, with a focus on current earnings power and cautious projections
Fisher conducts qualitative research with a strong emphasis on quality: finding companies in good sectors with management strength all the way down an organisation; marketing to identify areas for research; conducting focussed research; sales skill to sell the resulting research, and strong financial controls to monitor and feedback to management. The focus is to find a few great companies with massive future earnings power.
Question 2: What aspects of each, if any, would you like to make part of your own approach?
I strongly believe that the key is to combine them. Use Fisher's principles to unearth great companies, and don't stint on his many and useful evaluations of what makes a company great. Go through his 15 principles, and the 21 or so in the Appendix, and tick off how many the company meets. Then use this to build a quantitive model stretching as far as you think is justified into the future. If you can't project it accurately and quantitatively very far that is a warning... Use that to generate a current theoretical value for the company and compare it to the current market capitalization. Vary and stress test it for assumptions like terminal growth. Now you have an actual value of a company and you can compare it to Mr Market and his opinion. This is not the end of the process, but it is the end of the beginning.
Question 3: How would Fisher define the margin of safety for an investment? How does that compare with how you think Graham would define it?
Fisher's margin of safety is about buying a company that is so good, and so strong that the investor can sleep soundly even if the share price plunges 70% because he *knows* that the underlying company will continue to grow and that Mr Market will eventually recognise this. He was not a believer in efficient markets.
Grahams margin of safety is quantitative and conservative. Strong measured current sustainable earnings power or very low price compared to NAV - preferably net net - getting the company "for free"
Question 4: How does Fisher approach valuation? What do you think about his approach?
He has a qualitative approach. He believes that a great company will grow its earnings fast enough to rapidly justify the current share price. If it does not do so after 3 years, then you should lose patience with it and look for a better one. His practice is somewhat different from his theory here. But the principle is good: you should expect to pay more for the best, it's true in most things, it should be doubly so for companies, which are the biggest drivers of future wealth you can buy. If you look back at the best companies, and you had bought them early, your gains would be massive, and the initial buy price much less significant than buying the right company in the first place
Question 5: What do you think about Fisher’s checklist for assessing a company? Are there items you would add? Remove?
He tries to give a very generic list, and succeeds well at this. In his discussion it is clear that he actually specialises in manufacturing companies in areas where there is active research and a clear market for improved products. He admits that outside this area his process does not work so well. I believe his lists are somewhat slanted towards this type of company. For example, if I were interested in high growth service or finance company I would not be asking so many questions about their R&D, as this is unlikely to be the main driver of their growth. Their management of people, culture, incentives and the changing needs of their customers are much more likely to be important. In finance companies the management of risk needs serious consideration. Your list of questions needs to reflect the drivers of the industry you are looking at.
Question 6: What are the 3 most important criteria from Fisher’s list and why?
Of his 15 principles I think these are the key ones:
1)Does the company have products and services with sufficient market potential to make a sizable increase in sales for at least several years?
without growth potential, the likelihood of actual growth is slim, and Fisher's whole approach turns on this.
2)Does the company have a management that is determined to continue this?
A good management constantly refining and developing their operation in response to the marketplace is essential, especially in fast growing, rapidly changing industries.
5) Does the company have a worthwhile profit margin?
Some industries just don't have good margins, and it's almost impossible to change this no matter how good management is. Low barriers to entry, multiple competitors and undifferentiated offerings are formidably difficult to overcome, and the best approach with sectors like these is to look at the low margins and avoid.
Too long for all the answers. Other half follows in the next post
Fisher definitely specialized in innovative manufacturing companies, that's a good observation. Thought question: how would his 15 Points be different for a service company?
I would add an extra question to the fifteen, and modify the rest a bit.
16) Is the service that the company provides solving a critical pain point of its customers, and does the company own and control that service, so that the customers or competitors can not easily replicate it?
this is important for service companies, and not so much for manufacturers, because by their nature the manufacturer controls the product by virtue of making it and having IP on the designs and patents. Service companies are much more at risk of having their service insourced or replicated elsewhere, and need to be sure that they can answer this question positively.
For example Google solves the problem of which bit of advertising generates leads, and owns the platform and infrastructure and IP of the software that delivers this service, so that no customer could hope to replicate it, or competitor find it easy to enter the market.
Of the 15 points here is the new draft with a few changes:
Growth from services
Does the company have services that address a large enough market to drive substantial sales growth for years?
Management’s growth plan
Does management have a clear, determined plan to continue developing new services to further increase sales when current ones mature?
Effective R&D
How effective is the company market research and subsequent development of services in addressing its customer's evolving needs?
Strong sales organization
Does the company have an above-average sales organization (distribution, marketing, salesforce quality)?
High profit margins
Does the company maintain a worthwhile profit margin or use its large value add to customers to rapidly penetrate the market?
Margin stability/improvement
What is the company doing to maintain or improve profit margins over time and are they in control of this or being driven by outside forces?
Outstanding labour and personnel relations
Does the company have good relations with employees?
Executive depth
Does the company have depth in management, or does everything depend on one or two key people?
Cost analysis and controls
How good are the company’s cost accounting and control systems particularly if they are involved in large or long term contracted projects?
Industry-specific strengths
Are there aspects of the business like patents, brands, know-how, or logistics, that give it a stronger position than competitors?
Long-range outlook of management
Does management make decisions with a long-term perspective rather than for short-term boosts?
High integrity in management
Is management honest, with integrity and transparency toward shareholders?
No need for constant equity issuance
Can the company grow primarily from internally generated cash, without repeatedly issuing new shares that dilute existing owners?
Above-average return on capital
Does the company achieve superior return on invested capital relative to peers?
Clear, candid communication with investors
Does management provide straightforward, useful information to investors—not just the minimum required?
Question 1:
Similarities:
Both believed strongly in fundamental analysis, insisting that investors should carefully study companies rather than rely on tips or attempts to time the market. They also emphasized a margin of safety mindset—while Graham coined the term, Fisher similarly sought to minimize risk by deeply understanding the businesses he invested in. Another common thread was their insistence on investor discipline, encouraging patience, rationality, and the ability to resist emotional decision-making in order to achieve long-term success.
Differences (Cigar butt vs Scuttle butt)
Their approaches diverged in important ways. Graham’s philosophy was rooted in value investing, focusing on buying stocks priced below their intrinsic value, even if they were “cigar butt” companies. Fisher, on the other hand, pioneered growth investing, preferring outstanding companies with strong leadership and durable long-term expansion potential. His famous “scuttlebutt” approach involved gathering insights from employees, customers, and competitors to identify businesses with sustainable growth and innovation. In essence, Graham prioritized price and safety, while Fisher prioritized quality and growth durability.
Question 2:
From Benjamin Graham, I would adopt the principle of a margin of safety and his disciplined, quantitative approach to valuation. His focus on fundamentals like earnings and book value helps avoid speculation and ensures capital preservation.
From Philip Fisher, I would take his qualitative lens—evaluating management, innovation, and competitive advantage—and his long term growth mindset. Holding outstanding companies for decades allows compounding to work, blending Graham’s protection with Fisher’s upside
Question 3:
Philip Fisher’s idea of “safety” was rooted in the quality of the business itself, not in buying at a discount to book value. He believed that if you owned an exceptional company with durable growth, strong management, and innovation, you were protected against long term risk.
“The most important qualities of a company are not found in its balance sheet but in its people.”
Fisher did not emphasize margin of safety in the same quantitative sense as Graham. For him, safety came from owning exceptional businesses with durable growth prospects, innovative products, and strong management. His “margin” was qualitative—if a company had unique competitive advantages and the ability to compound earnings over decades, then the investor was protected against long term risk even if the stock price looked expensive in the short run."
Question 4:
Fisher believed valuation was inseparable from the quality and growth prospects of the business. In Common Stocks and Uncommon Profits, he wrote: “The successful investor is usually an individual who is inherently interested in business problems.” For Fisher, the true measure of value was whether a company had the ability to grow earnings consistently over long periods. He emphasized that paying a seemingly high price could still be justified if the company’s future growth was strong enough: “If the job has been correctly done when a common stock is purchased, the time to sell it is—almost never.”
I think Fishers approach shifts attention from temporary mispricing to the enduring economics of the business. While Graham’s strict valuation discipline protects against downside risk, Fisher’s approach highlights the upside potential of owning truly exceptional companies.
Question 5:
Philip Fisher’s checklist of 15 points emphasizes qualitative analysis as below:
• Growth potential: Products/services with long term sales expansion.
• Innovation: Commitment to R&D and product development.
• Market leadership: Strong competitive position.
• Profit margins: Ability to sustain or improve margins.
• Sales organization strength: Effective distribution and marketing.
• Industry relations: Good standing with suppliers, customers, and regulators.
• Cost analysis: Strong cost controls.
• Labor relations: Positive employee relationships.
• Management quality: Integrity, competence, and vision.
• Depth of management: Not overly dependent on one person.
• Accounting transparency: Honest, conservative reporting.
• Long term outlook: Management focused on sustainable growth.
• Capital needs: Ability to fund growth without excessive dilution.
• Profit reinvestment: Smart use of retained earnings.
• Scuttlebutt method: Gather insights from employees, competitors, suppliers, customers.
I would add “Digital resilience” to this list, In the age of software is eating the world, important to have Cyber security, data strategy, and adaptability to tech disruption checked out.
Question 6:
My top favourite criteria would be “Market leadership: Strong competitive position.”
In the book, "Competition Demystified", Greenwald stresses that strategy boils down to whether a company can prevent competitors from eroding its profits. Market leadership is only meaningful if it rests on defensible barriers Bruce Greenwald reframes market leadership as not just being the biggest player, but having durable competitive advantages rooted in barriers to entry. He argues that true leadership comes from controlling something rivals cannot easily replicate—like local dominance, customer captivity, or cost advantages—not simply from growth or size.
I also follow the The Morgan Stanley Global Franchise Strategy that invests in companies Characterised by their powerful intangible assets, notably brands and networks, these companies have high and stable returns on operating capital & can be sustained for the long term.
Question 7:
Fisher style screens would be
• Revenue growth: ≥ Industry CAGR with no decelaration over 5–10 years
• R&D intensity: consistently above industry median
• Gross margin: improving over 5+ years, Operating margin: trending upward
• ROIC (Return on Invested Capital): ≥ 15% and above cost of capital
• Growing Market share: Ideally Top 3 in industry or niche
• No Equity dilution or limited new issuance
• Employee satisfaction proxy: Industry eg:- Glassdoor rating ≥ 4.0/5
Question 8:
Trent (India), part of the Tata Group, operates Westside and Zudio as core formats in lifestyle retail, has a strong foothold across mid-market and value fashion—two of India’s fastest-growing retail segments. Its scale, brand architecture, and execution discipline make it a compelling fit with Fisher’s emphasis on durable growth, management quality, and market leadership.
Max Healthcare (India) is another strong Fisher style candidate because it combines market leadership in Indian private hospitals, consistent growth, disciplined margins, and credible management. It fits several of Fisher’s 15 points like
1. Max Healthcare’s has large TAM given rising demand for private healthcare in India.
2. Management continues to expand formats and invest in advanced clinical technologies to sustain growth.
3. Its extensive hospital network and brand recognition provide a powerful sales and distribution system.
4. Profit margins are worthwhile, with management focused on sustaining efficiency and improving returns.
5. Depth of management ensures the business is not dependent on one or two individuals.Management maintains a long term outlook, reinvesting in capacity and technology rather than chasing short term gains.
Question 9:
Lack of Stability : Growth companies are often relatively small and therefore unstable, Graham warned us on this. Fisher’s approach is excellent for identifying potential compounders, but it exposes investors to instability in small growth firms and subjective judgments.
High Valuation : Once the market recognizes a company as a “Fisher style growth stock” (durable growth, strong margins, innovative management), it tends to get bid up aggressively. They have many biases including Scarcity value, Compounding narrative, Institutional crowding, Momentum effect.
To quote Steven Crist (from Michael Mauboussin’s work) in horse racing, everyone wants the obvious winner. If a horse looks strong on paper—great past performance, good trainer, favorable odds—bettors pile in. The problem is:
• The horse may indeed win, but the odds collapse because everyone sees the same thing.
• Even if you’re right, the payoff is small because the market has already priced in the horse’s strength.
Question 10:
Fisher’s style is deep, concentrated, qualitative, business focused, long term, and growth oriented. His uniqueness lies in combining scuttlebutt primary research with concentrated long term holdings
I like cigar butt versus scuttle butt! Entertaining and very apt.
Do margins necessarily need to be rising in order for a company to fit Fisher's profile?
This is an interesting question with some subtlety, and to understand why I think this read on, but the summary is be aware of how the margin is being built, and whether it is being driven by externals like the cost of funding requiring the company to charge a lot, or the demands of investors, or strategically from within to maximize value over time. Low margins and high consumer surplus can be a formidable way to start a company, Amazon and Google both did this in the early days.
To understand this it is important to look at Consumer Surplus and Value added as concepts. Economists talk about this, but analysts not always so much, and it's a weakness that can lead to serious error.
Definitions:
Value added (Margin) = price − Cost of purchased inputs (costs)
There is a straightforward relationship between value added and margin, the more value added, the higher the margin is.
Consumer surplus = perceived value - price
Perceived value is the maximum price that the consumer of the product or service would be prepared to pay, and the consumer surplus the difference between them. The consumer surplus is the value the company is giving to the customer in return for their purchase.
Putting these equations together gives:
Margin = Perceived value - consumer surplus - costs
Which means margins are built by driving down costs, taking as much consumer surplus as possible and raising the perceived value.
Classic Playbook:
Invest in marketing and advertising to improve the perceived value of a product as well as building awareness of it - cars, cosmetics and fashion are built around this.
Use price discovery to take as much consumer surplus as possible: Salespeople incentivised to sell at as high a price as possible, price discovery, (are you prepared to pay extra for organic coffee), dynamic pricing (think airline tickets being hiked on big holidays), tiered pricing (Silver, gold and platinum service at different price points) and incremental price rises for tied in customers.
Invest in manufacturing or delivery of services at scale to drive down costs.
If companies do this too well, and push the margin too far it can get dangerous:
consumer surplus is reduced to the point that the customers no longer feel the product is good value, they start to feel price gouged, exploited or manipulated and begin to look for alternatives and/or complain to regulators.
Cost reductions lead to shoddy products or poor service
The resulting reputational damage can negatively affect the perceived value.
Put a mix of these together and in extreme cases it can be catastrophic. look up "Gerald Ratner" or "benzene in Perrier" for some of the most iconic collapses, but there is a more general lesson that margins must be built with an eye to leaving a reasonable amount of consumer surplus for the customers benefit.
Practical questions:
Try and estimate the consumer surplus for any product or service of a company that you are researching as you see it. The answers are vital if you want to gain an insight into the future path of profitability for a company:
If your phone manufacturer put up the price of the new model 10% would you upgrade when you needed to or switch to another brand? Or complain to a regulator? What about 50%
If your car insurer did the same thing would your response be the same?
If your monopolistic water supplier did the same what would your response be?
If Google lowered the visibility of your website so it never appears in searches unless you paid more for search what would your response be?
It is a problem for listed companies, with the relentless focus on quarterly earnings. Many of the best companies manage this by leaving plenty of value for the customer in the early days, which allows for plenty of years of incremental margin growth, and helps with early organic growth and issue free regulation. Google is a textbook case of this. Type "How has google managed its pricing? Does it attempt to maximise margin or leave lots of consumer surplus? How has its strategy changed and evolved over 25 years?" into Chatgpt for a perfect lesson in how this is done.
One of the reasons that private equity often does not deliver as well as it should is that it focusses on squeezing as hard as possible to generate cash, and forgets how much long term damage is done if the company is no longer adding much value to its customers because the consumer surplus is so low. It tends to result in disappointing growth and a failure to take advantage of a strong market position due to short term thinking even though the company appears to have the pricing power to increase margin short term.
1. So as far as differences go, Fisher has much more of an emphasis on scuttlebutt. Or simply that which isn’t readily available within the financial statements. Of the financial statements it seems like Fisher would put more of an emphasis on the income and cash flows. While Graham would put much more emphasis on the balance sheet. There are further differences though in how they would interpret some of these financial statements, Fisher doesn’t really seem all that enthusiastic about the trailing five year earnings per share. He speaks of the fundamental fact that the research and growth capital expenditures are going to make the next five years very different to the past five years.
2. So it was the closing chapter of Security analysis where Graham talks about being receptive to investment ideas from any means by which they are introduced to us i.e. the newspaper, a friend, etc. etc. In comparison Fisher doesn’t seem to express that same receptivity, in his 15 points essentially he’s reducing down the data set pretty aggressively, but with good reason. I would say that I would want Graham to be my first gate, which is too say that there are a plethora of investment opportunities that may be hidden in plain sight if I’m receptive enough to see them. However, my second gate would be Fisher, which would ideally be much stricter on the type of companies that pass through. This gate would require more work because the distinguishing of maintenance capex and capex isn’t always clearly delineated in the financial statements or the shareholder letters. Sort of like Amazon in its early days when they had razor thin profit margins but if you took out growth capex it had high single digit profit margins.
3. I’d say Fisher’s margin of safety is being able to purchase a company with a strong likelihood of above average growth in the near future that isn’t yet reflected in the market price. Essentially it’s a temporal difference one looks to the past the other looks to the future.
4. It seems to me that valuation from Fisher‘s point of view, relies heavily on insight into the growth and stability of margins, the ROI on growth cap ex, as well as the company’s capacity to expand into new markets or new products, thus increasing sales.
5. In looking over my notes, there’s really only one point that I think is worthy of special mention. It’s in regard to point 7: the paragraph that begins “nevertheless, beyond these general figures there are a few specific details the investor might notice...” Before I became interested in investing, when I was still developing marketable skills I always felt like companies that took care of their employees as well as they try to cater to customers, in general seem to do better than companies that treat their employees as expendable. Fisher puts it in such a way that he emphasizes sacrificing some small degree of margin to maintain good labor relations (union or not.). Ultimately, I emphatically believe in this point because I think it is an expression of thinking long-term rather than short term. It may be the company’s brand, it may be the product that a customer is seeking, but ultimately it’s the efforts of the staff that actually keep a business running day by day.
6. Leaning on my previous answer, my top three would be: 7, 9 and 10. Seven I’ve already explained. Number nine is a bit of a variation on the same thing. When management is a one-man show, that’s essentially the same issue as 7 but contained to the C suite. Obviously every company needs leadership who are ultimately responsible to make the final call, however a certain degree of democratic ideals colors my perception of this. Finally, I think 9 makes a good point. It’s absolutely necessary to keep good books in order to develop insight from those books which can help increase the precision of a company‘s capital allocation strategies.
7. I think in order to really generate candidates from a Fisher point of view I’d probably start by thinking of it in terms of sectors. Trying to determine what sector has the capacity for innovation, then trying to determine which companies within that sector have a high likelihood of success of innovation. Finally, then determining the individual characteristics of that company to consider whether it would become a worthwhile investment.
8. -
9. Ultimately, I think Fisher is very optimistic, maybe not to a point of fault but certainly to a point that necessitates a dose of caution.
10. Deeply researched, highly concentrated
Question 1:
I would say they are completely at odds. Graham, like Buffett, focuses on the numbers of a business. Fisher’s scuttlebutt method is at direct odds with this, often relying on insider sentiment and understanding of the business. In my opinion it is a more humble approach. Instead of understanding the business yourself, you become good at coaxing out valuable candor about their business from people close to the company who do.
Question 2:
I tend to agree with Fisher’s method of trying to gain insights beyond the financials. Nowadays much of this information is public and more heavily scrutinized by investors, so it is both easier to gather a lot of information and harder to disregard the signal from the noise. I think the focus on growth has been a very effective strategy, but shares a higher correlation to the market dynamics as a whole. I would have a portfolio with a majority geared towards reasonable future growth as I do agree it is easier to get things more right from an upward trend than a business turnaround. Much like momentum positive or negative it is hard to change motion.
Question 3:
Qualitatively rather than quantitative margin of safety. An exceptional company priced at an above average fair price would offer a margin of safety to Fisher. Graham relies more on the financials to identify a margin of safety. Fisher might use this margin to conservatively estimate growth into the future.
Question 4:
Unlike Graham who is price focused with a secondary thought to quality, Fisher approaches from a quality and longevity first prospective, caring secondarily about reasonable prices. He even insists on strict discipline to not sell when great companies appear overpriced and ripe for profit taking.
Question 5:
I like the focus around longevity of a business. I don’t personally want to mess around with tracking a ton of companies and news events. Getting this right seems like a big part of what personal success in investing my money would look like. In this modern day with LLM, I think it would be silly to not have an exhaustive checklist, so I would obviously add a ton of different items together for a checklist.
Question 6:
Moat ensuring longevity with big durable market runway
Exceptional labor relations (Are employees well paid and satisfied)
Smart and Effective Research and Development
Question 7:
I don’t think you have to generate potential candidates for these types of companies. You probably know some candidates from your personal network. High talent/drive individuals tend to flock to these companies.
Question 8:
I’m already tracking one. Google. I have recently spent a bunch of time trying to understand this business diving deep into their segments including Other Bets. I think long term this business will be successful as they are one of the only profit generating companies with foundational LLM models. Scuttlebutt from friends at this company is an exceptional focus on letting smart people free to indulge their ideas. Compensation and employee performance reviews are meritocratic. I think if the R&D of this company was more focused into commercially viable products which I think is inevitable as management changes over, it will be incredibly lucrative. Waymo is extremely exciting & hard to break out of their revenue, but they have outside investors willing to pay a lot to participate in this venture. Youtube metrics are staggering with more and more playtime on TVs (hard to quantify as they don’t release a ton of info on this).
Another company I track heavily is ASML. I myself am a former employee and think the company is exceptionally organized. They have great organization and great talent of embedded engineers at this company. Their focused R&D is miles ahead of any other competitors and they have a money funnel pointed at a very specific problem. Customers with their high throughput silicon tracers are quite literally printing money and employ such sophisticated engineers at companies like TSMC that are even more expert than the company that manufactures the machines. They are providing feedback in a positive flywheel that only grows ASML’s moat into the future.
My third pick would be NVDA or MSFT. Having visited NVIDIA hq Voyager I was beyond impressed with their engineers. They are relentless with their Speed of Light Ethos for solving complex problems. Known for exceptional labor relations they will continue to win in my opinion.
Question 9:
Disregards a ton of companies and enters into an already crowded and picked over universe of equities. As markets get more efficient and multiples expand on these great businesses compounders don’t generate as high returns as in previous decades.
Question 10:
Depth of Research. Deep scuttlebutt heavy focus.
Portfolio Concentration. Concentrated.
Qualitative vs Quantitative. Qualitative.
Business vs Security Analyst. Business.
Time Horizon. Very Long.
Sector Focus. Heavy R&D growth.
Geographic Focus. US.
Risk Tolerance. Moderate to High.
Long/Short. Long only.
Question 11:
Evaluate [COMPANY] using Fisher’s 15 points with a Strong/Moderate/Weak/Unknown verdict, add a reverse case for each point, explain the long-term growth runway, list 10 scuttlebutt questions that would validate or falsify the thesis, and give a 5-year Bear/Base/Bull narrative tied to innovation, management quality, and market expansion.
1. I see overlap between Fisher and Graham in that both want to understand a business and avoid permanent loss. Where they differ is in what they focus on. Graham leans more on numbers and cheapness. Fisher leans more on long-term growth and the qualities of the business. Graham is fine owning average companies at good prices. Fisher wants exceptional companies even if they don’t look statistically cheap. Both approaches can work depending on what you are trying to do.
2. From Graham I’d keep the discipline of having a margin of safety and paying attention to the balance sheet. From Fisher I’d keep the focus on long-term growth, culture, and management integrity. For my own approach I’d probably blend the two. I don’t want to own weak balance sheets, but I also don’t want to miss great compounders.
3. Fisher’s margin of safety mostly comes from the strength of the business. If a company can grow consistently for many years and reinvest at good returns, that provides its own cushion. Graham’s margin of safety comes more from buying at a cheap price compared to conservative value. Fisher trusts the business. Graham trusts the numbers. Both want protection, but they go about it differently.
4. Fisher approaches valuation by looking at whether the company can grow earnings for a long time and reinvest at high returns. He is not formula-heavy like Graham. I think this works for certain kinds of companies where the real value lies far in the future. It just requires judgment and patience.
5. I like Fisher’s checklist. It forces you to think about things that don’t show up in the financials, like management honesty, competitive position, culture, and the company’s ability to keep improving. If I added anything, it would be something on capital allocation since that matters a lot today. I don’t think I would remove anything.
6. The three most important items to me are:
Superior growth runway supported by real competitive advantages, because that drives long-term compounding.
Management integrity and openness, because nothing else works if management can’t be trusted.
Ability to reinvest capital at high returns, because even a long runway is wasted if the company can’t turn retained earnings into more earnings.
These three hit durability, trustworthiness, and compounding, which is the heart of Fisher’s thinking.
7. To find companies Fisher might like, I would start with industries that have long-term tailwinds. Then I’d look for companies with high margins, high returns on capital, and consistent reinvestment. I’d read transcripts to get a sense of culture and management. I’d avoid weak balance sheets or businesses that cut corners.
8. Three examples that seem to fit Fisher’s preferences are:
Constellation Software, because it has a long history of disciplined reinvestment and recurring revenue businesses.
CME Group, because it has a strong competitive position, high margins, and durable demand for its products.
Bakkafrost, because it has long-term industry tailwinds, strong biological advantages, and a culture that reinvests for growth.
All three have moats, honest and focused management teams, and long runways, which is what Fisher looks for.
9. The weaknesses of Fisher’s approach are that it can lead to paying too much if growth slows and it depends heavily on correctly judging management. It also takes time to understand the qualitative side. You also need patience because these companies rarely look cheap in the short run.
10. On a style map, Fisher sits very long-term, probably a 10. Low turnover, around a 1 or 2. Moderate diversification, maybe a 3 or 4. Strong emphasis on quality rather than cheapness, around an 8 or 9. Heavy reliance on qualitative work, maybe a 9 or 10. Moderate reliance on long-term expectations, maybe a 6. High dependence on management quality, around a 9 or 10. Medium risk tolerance since he avoids weak balance sheets but accepts price volatility, maybe a 5.
11. A useful AI prompt would be:
Act as an expert on Phil Fisher’s investing approach. I will give you a company. Evaluate it using Fisher’s fifteen points, focusing on growth potential, competitive advantages, culture, management integrity, and reinvestment ability. Give me a balanced view of strengths and weaknesses and tell me whether it resembles the type of long-term compounder Fisher would consider attractive.
Question 7: If you were trying to generate potential candidates for the type of companies that Fisher is looking for, how would you go about it?
Begin by narrowing the field: the best approach is to start by filtering out companies that don't meet the objective criteria: sector, margin and some current growth.
Then look through the list for evidence of an attractive product offering - his first criteria.
Once you have this much reduced list, the real work begins, looking at the management, the sector, the return on capital, and how good the companies products really are.
Question 8: Find 3 potential investment candidates that you think currently fit Fisher’s criteria and explain why they do so. Please go in some depth in your analysis/explanations for why they are a potential fit using Fisher’s criteria.
Alphabet
TSM
ASML
these companies meet Fishers criteria, in fact they completely crush some of them. I'm not going to go into full detail, because it would require a post 10 times larger, but i will pick up on the 3 main principles I picked above:
1)Does the company have products and services with sufficient market potential to make a sizable increase in sales for at least several years?
Yes, so much yes. Alphabet is currently taking the lead in AI, having a wildly dominant position in global search advertising revenue, and on that built a huge hosting business and a phone software business. TSC is the only company in the world to be able to make the current generation of chips. It is way ahead of its competitors, both in scale, skill and yield, which Fisher specifically mentions as advantages. ASML the only company to make the machines to make these chips. ASML provides detailed guidance on sales and margins until 2030 and no one seriously argues with them, because they are already almost a done deal given the size of the order book and the lack of any credible competition. The moats on these 3 companies are truly huge, bigger I think than Fisher could have ever dreamed of. For example, it took ASML 14 years and 10bn of research spending starting in the mid nineties to develop the current resolution of chip manufacture. The two others trying it gave up in 2008 saying it was too hard. That's a big moat. The money would be easily achievable, but trying to catch up that much time is not. Are they stopping? No, they currently invest 5bn per year on the next generation tools and improvements in the current generation and the ecosystem around it.
2)Does the company have a management that is determined to continue this? Yes, all have brilliant proven track records, and it helps that they can pay their employees exceptionally well from their huge margins to continue that virtuous circle.
5) Does the company have a worthwhile profit margin?
Alphabet - 30% net
TSC 56% gross, 40% net
ASML 51% gross, 26% net
These are massive margins on such large companies.
And finally are there further areas they can move into? Yes, and not just AI. Driverless cars, cloud software, internet of things, quantum computing, robotics and supporting various forms of cryptocurrency and other distributed ledger software applications. All of these have huge growth potential for the future, and all will be using chips and software to run on those chips of increasing scale and complexity. Some will disappoint, but I'm certain some will become huge, and engender further spinoffs.
These are not early stage plays in one sense, but the future is still incredibly strong for companies in this sector, and therefore I think still match his criteria. Nowhere in his 15 principles does it say that it has to be small and early stage, just have a very big future compared to the present and the companies in a strong position to benefit from this growth.
The problem? How much should you pay? All are fiercely expensive, and the valuations huge even if the current rosy projections turn out just as predicted. And because of the difficulty of matching supply and demand, the industry is high growth, but very cyclical, which can hammer profits and share prices in the short term. Applying Fisher's just buy it when you find it policy would have yielded spectacular results in the last few decades, but could easily disappoint for a long time if things go wrong from here.
Question 9: What are the weaknesses of Fisher’s approach?
There are two big weaknesses. The first is how hard it is to do. It was always difficult even in his day, but now, with the size, scale complexity and defensiveness of modern large corporations it's very much harder. To gain the level of insight that he requires for his investments is extremely labour intensive. Getting access and honest opinions from key staff is harder these days than ever. Key people don't answer phones, agree to meetings with random outsiders, or go off to trade fairs and talk freely about their businesses in the way that they used to. Executives are well trained to say the right things in interviews, and annual reports run to hundreds of pages of carefully crafted, not always very useful statistics. On the other hand there is plenty of public information touted by analysts, substack writers, gurus and private investors. The trouble is that it is often very superficial and low quality, and adds hugely to the noise.
His second weakness is that he does not pay enough attention to quantitive measures of the value of a company. In the first book he basically says buy a great company at pretty much any price. But, he even admits it as a mistake that he made himself: "In this case, disappointing performance was the result of being seduced by the excitement of the times into paying and unrealistic initiation price."
He tries to address this in his "The fourth dimension" chapters. It's and interesting read with some good observations, but it has the same feel as value investors adding quality to try and address the fundamental weakness of a pure value approach. He knows that you can't really ignore the market and the price of a stock, so he gives some useful pointers to address the issue, but not the fundamental one that you actually need to work out a real value, rather than just accept the going rate offered by the market.
Question 10: Map Fisher on as many dimensions of an investment style as you can (use this article for reference on the dimensions: https://behavioralvalueinvestor.substack.com/p/build-your-own-investing-style-learn)
He is a man of extremes, scoring between 4 and 7 on only 3 out of the 22 dimensions, and a 10 or 1 on 13 of them!
here is my updated list
https://datawrapper.dwcdn.net/xlHpX/1/
Question 11: Come up with an AI prompt based on Phil Fisher’s approach.
A simple one works well in Gemini 3.0
identify 20 companies with the highest barriers to entry, 15% growth rate per annum and net margins over 25%.
My 3 choices come in the top 10. Note one of Graham's observations is that to have achieved great numbers like these the management has to be excellent, so there is no point in counting this benefit twice, or indeed trying to filter for it too hard for proven large companies
For smaller ones it's better to use a stock data platform for the initial filters, then start digging from there.
Love the dimensions list. How fair is it to say that both Graham and Fisher have the same depth of research?
This is slightly an apples vs pears question, how exactly do you measure depth of research? Whatever the answer is it's not metres.
In my head I imagine Ben Graham sitting quietly at his desk with a calculator, carefully working through company numbers in depth, looking at the notes to the accounts and hunting for the warning signs of manipulation of the figures. In those days this was a manual, slow process, and because accounting standards were weaker there was more checking to do. In his memoirs, Graham admitted that since early adulthood he had “no single chum or crony.” and he struggled with personal relationships.
By contrast I see Fisher doing the desk work of understanding the company, including its financials, and then picking up the phone and going out to talk to people. There is no evidence of how much he does this that I could find online. He gave very few interviews, and his son said "he was socially ill at ease always, and insecure" but he could not have followed his own recipe for success if he had not. I suspect that he was much better when focussed on finding out what he needed to know, rather than general chat. This kind of networking: visiting, and talking to principles, engineers, salespeople and managers is very time consuming. It requires tenacity of a different sort, and the ability to communicate well, understand what you are being told in detail, and asking the right follow up questions, often on the fly. In my experience this kind of understanding is much slower, and requires very serious effort, and there was no ChatGPT to provide neat summaries of markets or understanding distribution models to help speed it up. It's particularly difficult to find out whether a research project is likely to yield a useful marketable result as he himself says in his book. For me this makes fisher the deeper researcher. One simple piece of evidence for this view is that Graham typically recommends 10-30 stocks, and for a more aggressive speculative portfolio at the top end of that. Fisher recommends less than 10 and focussing on the very best ideas.
Question 10:
1. Depth of Research (shallow to deep): 10
2. Portfolio Concentration (concentrated to diversified): 1 -- I'm not sure how concentrated investors get, but he advocated being diversified by sector and risk (not numerical quantity of companies), with a range of 5-10.
3. Quantitative vs. Qualitative: 8 -- cared a little about margins, revenue growth, and capital efficiency over many years (not just current)
4. Business Analyst vs. Security Analyst: 2 -- minor focus on capital structure and dilution risks
5. Time Horizon (short to long): 10
6. Investing Universe: Asset Class — I think common stocks only.
7. Investing Universe: Market Cap — Any
8. Investing Universe: Sector Focus — Sectors with growth history and growth potential; not cyclical or 'boring', static and old but ones with innovative potential
9. Absolute Return Focus vs. Relative Return Focus — Absolute Return; wanted the highest possible returns, not just reasonable returns
10. Risk Tolerance (low to high): 6 -- Speculation definition is different than Graham; but he still considered himself conservative because he made framework for what he believed to be conservative and held himself to it
11. Bottom-Up (micro) vs. Top-Down (macro): 2 -- Company focused, but aware of the influence of interest rates and inflation
12. Financial Leverage (no debt to any): 5 -- Prefers less debt, rather they be funded by their own profits, but okay with debt because he's confident that they will be so extraordinary that they will get the best rates and be able to pay back.
13. Growth Rate (any to high): 10
14. Activism (passive vs. active): 1 -- Didn't talk about trying to influence management
15. Focus on Earnings vs. Assets: 1 -- Interest coverage and liquidation didn't come up.
16. Technical Analysis vs. Fundamental Analysis: 10
17. Reversion to the Mean vs. Escape from the Mean: 10 -- The extraordinary that compounded forever
18. Management Interaction (none to detailed): 10
19. Primary Research (none to in-depth): 10
20. Long Only vs. Long/Short: 1 -- Buy and hold forever
Question 11:
I used this while answering Q8 as a fast way to find answers/sources to answer points I was concerned about. I also found the more 'dialog' style to be useful once I narrowed down the companies. For example, "How might Fisher think about that debt ratio?"
Task: You are a security analyst trained to find quality companies that meet Philip Fisher 15 points and 3 dimensions of a conservative investor. Do research on TICKER and provide evidence for each point and flag any weaknesses.
Strong Market Potential
• Products/services must allow for a sizable sales increase for at least several years
Functional Superiority
• Lowest‑cost producer or cost‑competitive across most product lines.
• Expert marketing, sales and distribution.
• A clear strategy for reducing costs and expenses to maintain or improve profit margins must be in place.
• Growth in sales must lead to a worthwhile level of profits over multiple years.
• Multi-year history of revenue/margin expansion greater than industry norms.
People Factor
• Management integrity is non‑negotiable: trustworthy leadership, long‑term orientation, and promotion from within.
• Management shows indication of shareholder alignment (own significant amounts of stock, compensation is reasonable)
• Track record of avoiding major ethical lapses or cover‑ups by current management team.
• Positive employee relations and healthy workplace culture.
• Demonstrated ability to adapt to industry changes over time.
• Proven R&D that translates into profitable products
Durable Uniqueness
• Clear competitive edge (proprietary skills, scale, brand strength, customer loyalty).
• Evidence of high switching costs.
• Barriers to entry that protect profitability from rivals and newcomers.
• What can the particular company do that others would not be able to do about as well?
• What are they doing that other companies have not thought of yet?
• Explicit check: moats must be tested against erosion risk in the next 10 years
Capital Structure
• Balance sheet discipline: debt levels manageable, not excessive.
• Generates enough profit to fund growth internally (R&D, marketing) without frequent equity dilution.
Question 8:
--ANET-- Market demand by AI, cloud and enterprise network is high and growing. 30% revenue CAGR over 5 years is > 3x industry averages. Growth is attributed to taking market share from legacy companies by offering fundamentally different, modern technology and software. They are also providing tech for cloud providers and hyperscale AI data centers. Net profit margins 39% is amazing, consider that industry averages ar~10%. This may be due to the fact that, like Nvidia, they use a contract manufacturing model and plow back savings into efficient R&D and innovation. ROE of 31% is 2x as good as industry average. Regarding reinvestment, they also have no debt funding their growth, which means they are using their profits to fund growth. Management is well recognized, long running and insiders are significant shareholders (17%). Ability to offer new technology demonstrates foresight and willingness to invest in the future. Moat comes from a modular, customizable software that is tightly tied with hardware. Concern: >20% of revenue is from 2 mega customers who will not be buying forever and who have the technical and operation skill to possibly make their own hardware, weaking the moat. This is a mitigation is underway by growing enterprise customers, increasing the reliance of key customers on its specialized networking software, and continued innovation to supply superior hardware, all of which are signs that management is forward thinking.
--ADOBE-- Market demand for digital and even print content creation/production is high and growing. 13% revenue CAGR over 5 years (not amazing, but consistent and revenues are significant to start with). Compared to software industry, net margins of 30% are ~2x higher and ROE of 52% is ~4x higher. Management is well recognized and stable, but management are not significant shareholders. It has historically navigated to a subscription based model early on which brought in stable revenue and reduce piracy costs. Their investment in integrating AI into the product is a sign that management is doing their job and responding to changes in market. Moat is amazing: customers need it (even if they don't always love paying the fee and find some UX features overly complex) because it dominates the enterprise creative space. Concern: They have increased debt by 17% over the past 5 years. Generative AI is shaking up creative space, potentially reduce entry level users need to buy subscription for basic work. Company is putting in substantial efforts to integrate commercially safe AI into their products. 'Scuttlebutt' thought regarding AI threat, as a customer, I've found the integrated AI to be of immense value to my work and a coworker recently upgraded to Illustrator from a competitor's product. Fellow industry members have similar responses: Canva may fill the lower tier needs, but enterprise still needs Adobe level tools. I think Adobe's hold here is going to be very difficult to shake.
--USLM-- Market demand is unending as it is a basic building material in many industries. 5 year Revenue CAGR 18% is 3x industry average. Net profit margin is 35% is also > 3x industry average. They own high-purity limestone reserves, significantly reducing cost to bring quality, higher value product to market. Vertical integration of process to distribution allows them to capture entire value chain. ROE is 24% is 1.8x industry averages. They have no debt, which is rare in mining, therefore growth is self-funded. This allows them it reinvest, as they are doing with their new efficient kiln to lower production costs and boost production. Management has stable, experienced leadership and holds shares. Moat is strong. Regional dominance in a high-growth area (product is expensive to ship in from sources farther away) creates a mini monopoly. Barriers to entry are very high; opening new quarries today is extremely challenging to regulation. 80% of US lime production is owned by 5 companies. Concerns: Cyclical, but to Fishers point, their margins provide a good cushion for bad times; they are a low cost producer and hold a valuable asset. Limestone reserves are in the decades currently, but eventually run out. There focus is regional not global, making the vulnerable to local downturns.
Question 9: I'm concerned about the risks of overly depending on quality as a justification for paying too high a premium and calling it investment when it's closer to speculation. His approach seems vulnerable to over‑optimism and to drawing wrong conclusions from subjective material, without also require some quantitative backing (maybe he did and I missed it). I'm skeptical that we can depend on a company to remain great for decades: people change, moats weaken, product demand can vanish. He mentioned IBM and DuPont in glowing terms, but I immediately thought about how IBM's moat has weakened and about DuPont's PFAS saga. Even if they check all 15 points, assuming amazing growth will occur for multiple decades seems naive. Is that kind of growth really possible in every generation? There are so many variables outside of even a great company's control. Another concern I have is that he embraces paying premiums more than I'm comfortable with. The further out he could predicted future earnings growth, the higher a premium he would pay because he believed the company could meet that valuation. There is the risk in misreading the situation and believing there is way more 'fundamental' growth or value than there really is and the acceptance of premium snowballs out of control. I understand that 'you get what you pay for', but there's a limit as to how far I should take that. One thing I don't remember him discussing is how many years it might it take for a company to reach premium valuation. We might be right in our thesis, but the longer it takes to get there the riskier and harder it feels. His approach requires a high level of confidence in one's ability to discern greatness and access to key people in the company and industry. He also advocated a fairly concentrated portfolio in order to maintain the required level of company awareness. For my part, I am in not in position to develop relationships with management. I’m also not that confident in my abilities that I could be so concentrated. The more concentrated I am, the more costly my mistakes will be.
His approach is definitely highly dependent on being right on your qualitative analysis, or else you just end up paying up a lot for something that isn't all that great and likely losing money.
Question 1:
Similarities: Both do deep research, just in different categories. Graham dug deep into numbers; Fisher into company quality. Both emphasizes long-term investing rather than trading. Each built frameworks they considered conservative, designed to protect against losses. Both were fundamental, bottom‑up investors, primarily company-focused, though they examined different dimensions of a business.
Differences: Graham’s goal was survival and reasonable returns (cautious, defensive); Fisher’s goal was not losing purchasing power and extraordinary returns (optimistic, growth orientated). Graham focused on past earnings and balance sheet strength; Fisher views past earnings as semi-useful, but mostly outdated and emphasizes future growth. Graham was skeptical of weighting the future too heavily, whereas Fisher put so much weight on it that he was willing to pay a premium for it. Graham’s approach is cold, restrictive, mathematical and price-driven; Fisher’s is qualitative, focused on management, competitive positioning, and long-term durability.
Question 2:
From Fishers philosophy, I appreciate the clear business mindset. I can use his observations to help me evaluate companies for the potential profitability and stability. The insights into when not to sell, mistakes to avoid, how to be diversified (etc.) were also helpful. I think going back through this book and formulating a written plan based on some of his directives could be useful for me. Similar to Graham, I am satisfied with reasonable returns rather than chasing extraordinary compounding. I know I will put less time than Fisher did into the deep knowledge of a company and my opportunities for 'scuttlebutt' will be limited. Therefore, I'm better off with Graham-like diversity in number/sector of stocks. Fisher puts more weight on the future than I'm comfortable with. I agree more with Graham's points about our inability to 'predict the future'. While I do put some weight on future growth potential, I'm skeptical about decade‑long compounding assumptions and amazing management lasting. If I bet on the future, I need to be honest that it is a speculation and weight the position wisely. I lean towards a more Graham-like definition of margin of safety: get in undervalued or at fair price.
Question 3:
Fisher emphasizes preserving purchasing power by demanding durable growth prospects to fight the effects of inflation. Safety comes from the company’s ability to grow and that is rooted in qualitative factors: excellent management, competitive edge, ability to expand sales and margins, and longevity prospects. If these fundamentals, the background of all the quantitative numbers, were solid, he was confident the future would be great.
Graham on the other hand emphasizes protection against loss and so focused on minimizing risk. He assumes the future is uncertain, so protection must come from a rock solid balance sheet and a purchase price below intrinsic value. Even in the worst case scenario of liquidation, the investment must be protected against loss by the balance sheet. His margin of safety is rooted in quantitative measures: liquidation value, long term average earnings history, and debt coverage.
They had slightly different goals and thus different ways to get there.
Question 4:
I think his way of determining value makes sense. He recognized that the current price is influenced by market opinion about stocks, industry, and company. He checked whether the view of the market, as expressed by price, accurately aligned with his understanding of the fundament facts about the company's quality and its industry to determine if a stock was priced at a discount, fair value, or premium. He emphasized understanding the background of past numbers and the reasoning for the future numbers. What would it take for the intrinsic value of the company to meet current valuation? Will revenue growth, margins, return on investment, and durability support the valuation?
Question 5:
I think he covers a lot here and I don't have anything to add. His thoughts about what makes a great business resonate. Points 1-6, 11 and 12: Really solid comments about how good leadership is critical in bringing together the research, marketing, production and sales teams to ensure that there is a market for the product/service and that they can actually produce and sell it. Is company operationally efficient? Are they willing to make tough decisions to remain relevant? What can they do that other can't? The emphasis in Point 7, 8, 9 and 12 is also solid because how we treat people is the most important thing in life and it make sense that that would be an important factor to success in business. I believe cultivating employees at all levels and treating vendors and customer with respect and great service increases company value in the long run. There are a few points that aren't as critical to me. Point 10: He noted that point 10 is hard to determine from an investor standpoint, so it's probably a 'nice to have', but not a dealbreaker. As he said, the other points matter more. Point 14: I understand his point, but I wonder if, ideally, good management could be trusted enough to have the freedom to use discretion about what dirty laundry to air and what not too--competitors probably should not know 'everything'. Management might even need to be wise about what they share that's working well!
Question 6:
Points 1, 2, 4. There must be a large, growing market for current product/service. Visionary, competent management is required to unite and direct the team to develop for the future. The company must be able to market, sell and distribute product/service efficiently and with excellence.
Question 7:
Start with the business sectors I understand or industries I want to learn about that have a growing market for their products/service. I would probably use AI to help me understand industry average revenue growth. Then screen to find the outliers (or again use AI to help me search). Once I find some companies, use AI to do preliminary research for possible criteria match to my adjusted Fisher style framework. Pay attention to red flags and pursue learning more about company if it looks promising. Dig deeper into sources, ask questions and do research. If company met goals, it would go on a watchlist for when the price was right.
I wonder how much Fisher's approach lends itself to purely screening on financial characteristics vs. combining quantitative measures with primary research. I believe Warren Buffett (when he was MUCH younger) used to ask CEOs something like "If you could use a silver bullet to kill just one of your competitors, who would it be and why?" as a way of figuring out if there was an outlier player in an industry.
Good point, he’s not quantitative. Maybe more of top down approach on the quality side than the metrics. It could be interesting probe an AI about what industries are growing, their trends/future, which companies are promising, which companies have a good workplace ratings, etc and see what surfaces.
Question 1:
The main similarity is that they both believe in valuing companies rather than securities and that the market can be inefficient in a profitable way. They both also believe in understanding the qualitative factors in pricing a company. Where they differ is in the investments that they would make. Graham is very agnostic about his investments, as long as they are undervalued and not speculations he is willing to invest. On the other hand Fisher is very focused on equities in specific sectors. I suspect a lot of the investments that Fisher made would be considered borderline speculative by Graham.
Question 2:
The two books cover different areas of investing. Graham is focussed on building a framework for deciding what is investable and how it can be valued quantitatively, where as Fisher’s focus is on the qualitative factors affecting the value of a company.
A lot of the investment opportunities outlined by Graham such as bonds and convertibles are either not available to purchase or require buying large amounts making them impractical. I also have intermittent time available to monitor investments and so Fisher’s approach of finding stocks that can be bought and held for long periods of time are more suitable. Also appealing from Fisher’s approach is the depth of research, which fits with my personal preferences. I will definitely use the quantitative methods from Graham and try to achieve the same clarity of thought when assessing information.
Question 3:
I think you could describe both Graham’s and Fisher’s approach to margin of safety as buying securities at a price less than the future results of the company would indicate. The difference would be how they assess those future results… Graham assumes the future of the company to be no greater than the past whilst Fisher attempts to find companies that will be better in the future.
Question 4:
Fishers approach is based on the future earnings of a firm and not directly anchored to its historical earnings. He is looking to make realistic assumptions of how a firm can grow its revenue, assuming it does not make excessive margins. The inputs to these assumptions are very much qualitative as can be seen in his checklist. Fisher is happy to pay a reasonable price for a stock as long as he has confidence in it abilities to grow in the long term, as this will produce a higher valuation on it’s own.
Question 5:
Fishers list is great for understanding the inputs that will likely make a company successful in the future. I think a weakness in the list is due to Fisher’s specialisation in industrial companies. These companies rely on significant R&D expenditure to develop new products and enhance existing ones to increase sales. A more general list would substitute these question for ones based on other growth models, such as those with network effects or the purchase of unique properties.
Question 6:
I think the following are the most important:
- Point 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?” - This is the most essential as Fishers whole investment approach is based around growth.
- Point 15 - “Does the company have a management of unquestionable integrity?” - Essential to reduce the risk of management stealing all the gains.
- Point 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?” - The company can perform as expected but the investment will not as the gains have been shared. This is a company with a low return on capital.
Question 7:
Fisher recommends as a starting point speaking to other well respected investors to understand what they are invested in. Fisher would not get the opinion of just any investor, only those he strongly valued. This is something that is easy to replicate in the modern world as most funds have to publish their portfolios and a monthly investment report, allowing insight into what they are buying and why.
Question 8:
I’ve picked 3 companies from a mutual fund manager that is well known for investing in quality growth companies. They are London Stock Exchange Group, Sage and Nintendo. What’s become apparent is it’s easier to quickly assess some aspects than other…
It’s easy to find out that all these companies have markets with room for growth and management has made great efforts to develop new products through R&D. The products all have a good margin and future growth can be funded through retained profits. This can be obtained from company report although should be independently verified. Previous performance also hints at the operational effectiveness questions that Fisher would ask and to a lesser extent the management questions.
Outside of these limited points I can’t be sure that these companies fit Fisher’s criteria, but they are a starting point. The next sources to check would be news articles for anything related to the management, employee relations, etc, being careful to avoid PR pieces. Legal cases, trade magazines, recruitment sites, company review sites, product review sites and reports from directors previously employers would all also help to gain a more detailed view of the company.
Question 9:
Fishers approach requires a lot of effort be placed on researching individual companies. The implications of this are that an investor must either have an excellent filter for companies worth investigating in depth or focus on a particular sector/industry. Fisher’s choice was to focus on a specific industry.
Question 10:
1. Depth of Research (shallow 1 to deep 10) - 10
2. Portfolio Concentration (concentrated 1 to diversified 10) - 7
3. Quantitative (1) vs. Qualitative (10) - 7
4. Business Analyst (1) vs. Security Analyst (10) - 1
5. Time Horizon (short 0 to long 10) - 10
6. Investing Universe: Asset Class - Equities
7. Investing Universe: Market Cap - Mid to Large Cap
8. Investing Universe: Geography - US
9. Investing Universe: Sector Focus - Industrials
10. Absolute Return Focus (1) vs. Relative Return Focus (10) - 1
11. Risk Tolerance (low 1 to high 10) - 5 (Fisher doesn’t really mention risk)
12. Bottom-Up (micro 1) vs. Top-Down (macro 10) - 4 (Fisher does try to factor in whether the market is Bullish or Bearish, but doesn’t look at anything outside of that)
13. Financial Leverage (no debt 1 to any 10) - 1 (he doesn’t mention this so I presume he uses none)
14. Growth Rate (any 1 to high 10) - 10
15. Activism (passive 1 vs. active 10) - 1 (I’m inferring he would exit a company rather than agitate for change)
16. Focus on Earnings (1) vs. Assets (10) - 1 (his sole focus is on future earning)
17. Technical Analysis (1) vs. Fundamental Analysis (10) - 10
18. Reversion to the Mean (1) vs. Escape from the Mean (10) - 10
19. Management Interaction (none 1 to detailed 10) - 7 (He only interacts with management after he has done his research)
20. Primary Research (none 1 to in-depth 10) - 10
21. Long Only (1) vs. Long/Short (10) - 1
Question 11:
I think Fishers approach is more open to using LLM’s than Grahams as there is a larger qualitative element to the analysis - synthesising text is what LLM’s do best.
I used the following prompt on Gemini Pro in Thinking Mode on a company I understand well and got acceptable results:
“Using Philip Fishers 15 point list assess the company XXX.”
I can think of two uses for this:
1. Find a list of companies you are interested in, run one prompt for each company, ensuring all the scores are output as numerical values. Combine the results and focus further research on the higher scoring companies.
2. As a check after having researched a company to find any weaknesses in the analysis
Good thinking on the two different AI prompt use cases
1. Both Graham and Fisher focus on not overpaying for an investment and having some sense that cash flows would be consistent or increase over the holding period. While Graham focused on the assets and liabilities of a company, Fisher adds qualitative factors such as quality management decision making and relationships with both customers and employees. This was done primarily using the "scuttlebutt" method of having first hand conversations with management, employees and customers to evaluate how the company actually operates.
2. I think both areas are valuable for asset selection. Qualitative factors are the foundation that the quantitative factors are built on.
3. Fisher would add a less defined area in how the quality of management and their decision making supports the growth of a company. Some of his fifteen factors may be more predominate in valuing a company and some factors may be less important. Graham would base margin of safety primarily, but not solely, on quantitative factors. He would be more focused on the price of a company to the value of its assets and their ability to produce future streams of income.
4. Fisher adds management quality and their ability to adapt to a changing economic environment in a reasonable manner, both financially and in the managerial processes of running a successful company. I think this is fundamental to the selection of investments.
5. HIs checklist provides a well rounded approach to evaluating a company as to whether or not to invest. There isn't anything I could add or remove other than adding how the effects of technology will affect the company.
6. Profitability, quality management and adaptable to growing markets. These are the fundamental factors which cause a company to be able to survive challenging times and be able to grow over time.
7. First look at quantitative factors to eliminate possible candidates that don't fit the criteria. Once the list is edited, look for those with the most sustainable and adaptable growth characteristics as compared to like companies in their fields.
8. CARR - There is a growing need for heating and air services both for those needing replacing and the building of data centers which will need to be climate controlled. It is currently reasonably priced and at the top of its competitive group of companies.
ITW - It is currently reasonable priced and provides the tools needed both to maintain existing and build new buildings.
KMB - It is also currently reasonably priced and has been a strong company for a number of years. It provides items which need to be replaced periodically. It can also grow through acquisition.
9. One could fall into a value trap - a company having a low price for an unknown reason. The company may not be able to sustain itself through challenging times. Their goods and services may not evolve with the economy during a period of change such as we see with technology.
10. Fisher's dimensions would be:
Deep research
Highly concentrated
Combines both quantitative and qualitative
Medium term time horizon - 3 year minimum holding period
Leaves out some sectors
Wide universe of choices
Focus on earnings
Reasonable debt relative to financing activities
Fundamental analysis
More emphasis on quality management
11. Provide a list of 30 companies with growth rates exceeding 10% over a 10 year period, a profitability of greater that 15%, and a debt ratio not exceeding 30%.
Management quality is crucial to Fisher's approach
Question 1: What are the similarities between Fisher’s investing philosophy and Graham’s? What are the differences?
Similarities:
they both believe in rigorous research with no corners cut, finding companies with sustainable earnings power and a good margin of safety
Differences
Graham emphasizes quantitive research, numbers based, with a focus on current earnings power and cautious projections
Fisher conducts qualitative research with a strong emphasis on quality: finding companies in good sectors with management strength all the way down an organisation; marketing to identify areas for research; conducting focussed research; sales skill to sell the resulting research, and strong financial controls to monitor and feedback to management. The focus is to find a few great companies with massive future earnings power.
Question 2: What aspects of each, if any, would you like to make part of your own approach?
I strongly believe that the key is to combine them. Use Fisher's principles to unearth great companies, and don't stint on his many and useful evaluations of what makes a company great. Go through his 15 principles, and the 21 or so in the Appendix, and tick off how many the company meets. Then use this to build a quantitive model stretching as far as you think is justified into the future. If you can't project it accurately and quantitatively very far that is a warning... Use that to generate a current theoretical value for the company and compare it to the current market capitalization. Vary and stress test it for assumptions like terminal growth. Now you have an actual value of a company and you can compare it to Mr Market and his opinion. This is not the end of the process, but it is the end of the beginning.
Question 3: How would Fisher define the margin of safety for an investment? How does that compare with how you think Graham would define it?
Fisher's margin of safety is about buying a company that is so good, and so strong that the investor can sleep soundly even if the share price plunges 70% because he *knows* that the underlying company will continue to grow and that Mr Market will eventually recognise this. He was not a believer in efficient markets.
Grahams margin of safety is quantitative and conservative. Strong measured current sustainable earnings power or very low price compared to NAV - preferably net net - getting the company "for free"
Question 4: How does Fisher approach valuation? What do you think about his approach?
He has a qualitative approach. He believes that a great company will grow its earnings fast enough to rapidly justify the current share price. If it does not do so after 3 years, then you should lose patience with it and look for a better one. His practice is somewhat different from his theory here. But the principle is good: you should expect to pay more for the best, it's true in most things, it should be doubly so for companies, which are the biggest drivers of future wealth you can buy. If you look back at the best companies, and you had bought them early, your gains would be massive, and the initial buy price much less significant than buying the right company in the first place
Question 5: What do you think about Fisher’s checklist for assessing a company? Are there items you would add? Remove?
He tries to give a very generic list, and succeeds well at this. In his discussion it is clear that he actually specialises in manufacturing companies in areas where there is active research and a clear market for improved products. He admits that outside this area his process does not work so well. I believe his lists are somewhat slanted towards this type of company. For example, if I were interested in high growth service or finance company I would not be asking so many questions about their R&D, as this is unlikely to be the main driver of their growth. Their management of people, culture, incentives and the changing needs of their customers are much more likely to be important. In finance companies the management of risk needs serious consideration. Your list of questions needs to reflect the drivers of the industry you are looking at.
Question 6: What are the 3 most important criteria from Fisher’s list and why?
Of his 15 principles I think these are the key ones:
1)Does the company have products and services with sufficient market potential to make a sizable increase in sales for at least several years?
without growth potential, the likelihood of actual growth is slim, and Fisher's whole approach turns on this.
2)Does the company have a management that is determined to continue this?
A good management constantly refining and developing their operation in response to the marketplace is essential, especially in fast growing, rapidly changing industries.
5) Does the company have a worthwhile profit margin?
Some industries just don't have good margins, and it's almost impossible to change this no matter how good management is. Low barriers to entry, multiple competitors and undifferentiated offerings are formidably difficult to overcome, and the best approach with sectors like these is to look at the low margins and avoid.
Too long for all the answers. Other half follows in the next post
Fisher definitely specialized in innovative manufacturing companies, that's a good observation. Thought question: how would his 15 Points be different for a service company?
That's a good question!
I would add an extra question to the fifteen, and modify the rest a bit.
16) Is the service that the company provides solving a critical pain point of its customers, and does the company own and control that service, so that the customers or competitors can not easily replicate it?
this is important for service companies, and not so much for manufacturers, because by their nature the manufacturer controls the product by virtue of making it and having IP on the designs and patents. Service companies are much more at risk of having their service insourced or replicated elsewhere, and need to be sure that they can answer this question positively.
For example Google solves the problem of which bit of advertising generates leads, and owns the platform and infrastructure and IP of the software that delivers this service, so that no customer could hope to replicate it, or competitor find it easy to enter the market.
Of the 15 points here is the new draft with a few changes:
Growth from services
Does the company have services that address a large enough market to drive substantial sales growth for years?
Management’s growth plan
Does management have a clear, determined plan to continue developing new services to further increase sales when current ones mature?
Effective R&D
How effective is the company market research and subsequent development of services in addressing its customer's evolving needs?
Strong sales organization
Does the company have an above-average sales organization (distribution, marketing, salesforce quality)?
High profit margins
Does the company maintain a worthwhile profit margin or use its large value add to customers to rapidly penetrate the market?
Margin stability/improvement
What is the company doing to maintain or improve profit margins over time and are they in control of this or being driven by outside forces?
Outstanding labour and personnel relations
Does the company have good relations with employees?
Executive depth
Does the company have depth in management, or does everything depend on one or two key people?
Cost analysis and controls
How good are the company’s cost accounting and control systems particularly if they are involved in large or long term contracted projects?
Industry-specific strengths
Are there aspects of the business like patents, brands, know-how, or logistics, that give it a stronger position than competitors?
Long-range outlook of management
Does management make decisions with a long-term perspective rather than for short-term boosts?
High integrity in management
Is management honest, with integrity and transparency toward shareholders?
No need for constant equity issuance
Can the company grow primarily from internally generated cash, without repeatedly issuing new shares that dilute existing owners?
Above-average return on capital
Does the company achieve superior return on invested capital relative to peers?
Clear, candid communication with investors
Does management provide straightforward, useful information to investors—not just the minimum required?
Gary, Could you please put out a list of the books we will need? Thanks
Will do. The next couple are online/freely available, but I will try to do it next week so that you can get ahead of the next batch
Great series and comments from fellow participants. Happy to join in.
普通股与非常规利润