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Strategies & Market Trends : The Rational Analyst -- Ignore unavailable to you. Want to Upgrade?

To: HeyRainier who wrote (320)	2/15/1998 3:19:00 AM
From: HeyRainier	Respond to of 1720

[ Common Stocks and Uncommon Profits ] Today marks the beginning of a 15 day series in which I will repeat some guidelines provided by Philip Fisher in his classic text Common Stocks and Uncommon Profits. The schedule is for one guideline per day, each relating to Chapter 3: What to Buy: The fifteen points to look for in a common stock. For those of you who are unfamiliar with Mr. Fisher, he is the father of Kenneth Fisher, the columnist of Forbes. But more importantly, he served as a mentor of sorts to Warren Buffett. And it is because of this influence that Warren Buffett once claimed,"I'm 15 percent Fisher, and 85 percent Benjamin Graham." Fisher believed that superior profits could be made by (1) investing in companies with above average potential and (2) by aligning oneself with the most capable management. His first point: 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? It is by no means impossible to make a fair one-time profit from companies with a stationary or even a declining sales curve. Operating economies resulting from better control of costs can at times create enough improvement in net income to produce an increase in the market price of a company's shares. This sort of one-time profit is eagerly sought by many speculators and bargain hunters. It does not offer the degree of opportunity, however, that should interest those desiring to make the greatest possible gains from their investment funds. Neither does another type of situation which sometimes offers a considerably larger degree of profit. Such a situation occurs when a changed condition opens up a large increase in sales for a period of a very few years, after which sales stop growing. A large scale example of this is what happened to the many radio set manufacturers with the commercial development of television. A huge increase in sales occurred for several years. Now that nearly 90 percent of US homes that are wired for electricity have TV sets, the sales curve is again static. In the case of a great many companies in the industry, a large profit was made by those who bought early enough. Then as the sales curve leveled out, so did the attractiveness of many of these stocks Not even the most outstanding growth companies need necessarily be expected to show sales for every single year larger than those of the year before. In another chapter I will attempt to show why the normal intricacies of commercial research and the problems of marketing new products tend to cause such sales increases to come in an irregular series of uneven spurts rather than in a smooth year by year progression. The vagaries of the business cycle will also have a major influence on year to year comparisons. Therefore, growth should not be judged on an annual basis but, say, by taking units of several years each. Certain companies give promise of greater than normal growth not only for the next several year period, but also for a considerable time beyond that... (Think Buffett and Coke.) Rainier