The Motley Fool : Author offers uncommon insights into common stocks
Meet Philip Fisher, one of the world’s best investment thinkers and author of the classic “Common Stocks, Uncommon Profits” (Wiley, $20). Here are the eight points of his investment philosophy:
“Buy stock in companies with disciplined plans for achieving dramatic long-term growth in both profits and revenues. They must also have inherent qualities that make it hard for new competitors to share in such growth.
“Aim to find such companies when they are out of favor – when market conditions are not favorable or the financial community does not properly see their true worth.
“Hold the stocks you buy until there has been either a fundamental change in the company’s nature or it has grown to a point where it will no longer be growing at a faster rate than the economy as a whole. Don’t sell your most attractive stocks for short-term reasons.
“If your primary goal is long-term appreciation of capital, then de-emphasize the importance of dividends.
“Recognize that mistakes are inevitable. Recognize them as soon as possible, understand their causes, and learn from them so that they’re not repeated. A willingness to take small losses in some stocks while letting profits grow bigger in your more promising stocks is a sign of good investment management.
“Realize that there are a relatively small number of truly outstanding companies. Concentrate your money in the most desirable opportunities. Holding more than 20 companies is unmanageable. Aim for 10 or 12.
“Have more knowledge than others and apply your judgment after thoroughly evaluating specific situations. You should also have the moral courage to act against the crowd when your judgment tells you that you’re right.
“One of life’s basic rules also applies to investing: Success is highly dependent on a combination of hard work, intelligence and honesty.
Ask the Fool
Q: What’s “front-running”? – C.W., West Palm Beach, Fla.
A: It’s a shady practice engaged in by some unscrupulous folks in the financial realm. A mutual fund manager, for example, may buy shares of a company for her personal portfolio and then begin buying many shares for her fund, driving the price up and generating profits for herself. A talking head on television may talk up a company after having bought into it for himself or his firm. A broker, knowing that his firm will be releasing a positive report on a company, may buy shares of it for himself. These are all examples of front-running, which in some cases is illegal.
My dumbest investment
I used to work with some doctors who all used the same stockbroker. They recommended him to me, even though they consistently lost money on his advice. So I signed up with him, and whatever he advised, I just did the opposite. It worked very well, until he told me he was too busy to deal with such a small investor. Next, I signed up with my dentist’s wife, who recommended some electric company bonds, which turned out well. All this success went to my head, so in my total ignorance, I listened to a fast talker who was selling futures and lost $4,000 in a matter of a few weeks! Now, a few years later, I’m trying to learn how to invest properly, while making very small investments in companies that I have studied. I’m using a brokerage that does not offer unasked-for advice, but simply takes its commission when I buy or sell. – Hazel Watson, Ann Arbor, Mich.
The Fool Responds: Your do-the-opposite strategy was brilliant. You can learn more about investing in Motley Fool or Peter Lynch books.