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An Outline of the Phil Fisher Investment Philosophy Shared in His Book

Phil Fisher, author of Common Stocks and Uncommon Profits, has now taken a shift in the most recent chapter of his book to focus on some of the philosophies that have helped shaped his methodology.  He really goes deep into his experiences so hopefully you can learn something from these Phillip Fisher Growth Investing philosophies below:

Origins of an Investment Philosophy

So, where does it all start? 

Well, Fisher recalls a time when his uncle had stopped in one time to talk to his grandmother about investing and some of the stocks that were in her portfolio. 

Fisher later admits that these conversations really weren’t deep or meaningful, but they were enough to get things churning in his mind about investing, and thus began his adventure in investing.

Fisher’s first true learning experienced formed from one of his professors that taught him about investing.  Each week, and sometimes more than once a week, the professor would have the students take a “field trip” to various businesses to see their processes and learn all about them. 

The goal was to study these businesses and learn what you can to see if you thought it would be a worthwhile investment.  Well, since this was many years ago and cars were at a premium, Fisher would always offer to drive the teacher to these field trips. 

Doing so allowed him some 1 on 1 time to learn exactly what the professor was looking for before the meetings and his thoughts and opinions after the visit, therefore allowing Fisher the opportunity to help learn the important things to look for in the eyes of the professor. 

Fisher’s first employment opportunity with investing was when he was working with a bank doing some investigative work.  He described his own work as being “intellectually dishonest” because the bank had a hidden agenda for the things that they were trying to push to their customers. 

This was a huge takeaway because you can’t simply read an article or some analysis and take it at its word – you need to dive deeper!

So, Fisher wanted to focus on building some of the basics.  Reading and understanding the financial records are never enough of a reason to solely justify an investment – you need much more than that!  It is also essential to learn about the people running that company. 

Are they ethical?  What do they value?  Do they treat their people right?  Can you trust them? 

Yes, the financials are very important, but you need to be comfortable with the company.  After all, if you do choose to invest, they’re the ones managing your investment money.

One thing that Fisher said that really stuck out to me is that “the difference of a fool and a wise man is that a wise man learns from his mistakes.”  I thought this was awesome advice. 

Don’t be afraid to make mistakes, but you need to be better from them and learn how to avoid those same mistakes going forward. 

Finally, Fisher had a chance to do his own thing.  He was offered a position that allowed him the free reign to do as he wanted, so he would look at any certain stock that might have stuck out to him for any reason at all to determine if it was a financially sound investment.

From Disaster, Opportunity Springs.  This is the name of the next section that Fisher goes into, but I just wanted to say it.  It really is an impactful set of four words.  Always try to find the silver lining in things.  Fortunately for Fisher, he did.  When the stock market had started to recover from the bear market, Fisher decided to get into the business and do his own thing and start his own gig. 

He didn’t know that this was the perfect time to start his own business, but it was.  People were ready to make a change from those that were currently managing their money as there weren’t great returns being realized, so he had an onslaught of people that were receptive to a new money manager.

The first two years were very rough for Fisher, but he stuck the course and it eventually paid off for him. 

Learning from Experience

Fisher really started to pound the importance that business advantages are so incredibly important, but oftentimes they will be used with blinders and will cause people to overlook the people in the business.  The people are the ones that are actually physically making things happen. 

You could have the best products, the lowest costs, and the best brand recognition and it can all be ruined because you have bad people that change these advantages either with their negligence or because they’re unethical.  It is imperative to have both business ability and integrity in the employee base.

Once again, Fisher hits on the importance when zigging when others are zagging and then zagging when others are zigging.  Try to think outside of the box and take a contrarian view.  Sometimes this can become too easy, and you might take a contrarian, but incorrect, view just to play the devil’s advocate. 

Playing devil’s advocate is never a bad thing as long as you can control it and it doesn’t cause you to make reckless decisions.  Look to what everyone is advocating for and talking about and really challenge if they’re thinking about it correctly.

Something that Andrew and Dave talked about in their podcast is having a no touch zone, in a sense, where they will not sell a stock after they buy it no matter what happens. 

This will keep them from having that immediate buyer’s remorse and causing them to do something irrationally that they might not have otherwise done. 

For Fisher, this time period is three years!  Three years might seem excessive, but if you’re a true value investor, then three years is still likely a very small percentage of your horizon, so maybe he’s right on with his “no touch zone!”

Now, he does say that to every rule there are exceptions.  There have been times that he’s held onto a very bad performing stock after its three-year period, but it was because he had extreme faith in the company and the management and felt that they were unfairly getting a very bad valuation from the public. 

So, he held on.  And it paid off. 

At the end of the day, rules are nothing more than rules, but you need to make sure if you’re breaking them that you’re 110% confident in your reasoning to do so.

Having a rule like this in place will help keep you from trying to time the market.  Chances are, if you’re new to investing, you’re either currently trying to time the market or you think you can and you’re about to start trying.  That’s fine.  Go ahead.  You’ll lose money.  And if you don’t lose it this time, you will lose it next time. 

Oftentimes, people will try to time the market and it will cause them to experience small gains when they do win but huge losses when they do lose.  I’m not sure about you, but that reward doesn’t sound worth the risk.

And finally, Fisher talks about the importance of not letting price get in the way of missing an opportunity.  For instance, if you’ve decided that you’re going to buy a stock that’s currently at $52 when it gets to $50, and then it goes to $50.25 and you don’t buy, then you’re potentially really causing yourself to miss out. 

Don’t spend time trying to nickel and dime a stock like that.  Similar to timing the market, you’re just timing a stock, and the reward is not worth the risk.

Overall, Fisher has had some amazing experiences throughout his entire life that are very beneficial to learn from.  He’s really done a lot of unique things but the thing that I really took away is that we need to get out and make our own learning moments. 

Be the person that offers to drive someone, so you can pick their brain about something.  If you know someone invests and is very knowledgeable of markets or certain industries, offer to buy them lunch and pick their brain.  There’s an infinite amount of ways that you can get out there and create your own learning experiences – you just need to do it!