What it means
Fisher ran his own investment advisory firm in California and became known for being highly selective. Rather than spreading money across dozens of shares, he preferred to hold a small number of companies he understood very well.
His view was that the real risk was not in concentrating on a few excellent businesses, but in owning many that you did not know. His central tool was what he called scuttlebutt.
This meant gathering information about a company by talking to customers, suppliers, competitors, former employees and industry experts, instead of relying only on financial statements. For a finance professional, it is a reminder that qualitative evidence can reveal things that accounts alone will not.
In his book, he set out fifteen points to look for in a company. They include a product or service with strong sales potential, management committed to developing new products, an effective research effort, above-average profit margins, good labour relations and management with integrity and depth.
Not every company will score well on all fifteen, but the checklist shows what he valued. He was also clear about when to sell.
He suggested that you should sell if you made a mistake in the original analysis, if the company no longer met the standards you bought it for, or if you found a much better opportunity. He did not believe in selling simply because a share price had risen, and he warned against reacting to short-term market swings.
Comparing him with value investors such as Benjamin Graham is common. Graham looked for cheap shares trading below their asset value, whereas Fisher accepted paying a fair price for exceptional growth.
Many investors blend the two approaches, using value discipline to avoid overpaying and Fisher-style research to identify outstanding businesses. Limits apply to his method.
Growth shares can be expensive, and an excellent company can still be a poor investment if its price already assumes perfection. Scuttlebutt is also time-consuming and is easier for professionals than for casual investors.
In practice
Real-world examples.
Example
An investor considering a medical equipment maker speaks to hospital buyers, former sales staff and two competitors. They all describe the company's service as the best in the industry, which gives her more confidence than the financial statements alone. Her confidence rises further when none of the people she speaks to raise concerns about product quality.
Example
A fund manager holds just twelve shares, each of which he has studied for years. When a key research director leaves one of the companies, he re-examines his original case and decides the company no longer meets his standards, so he sells. He keeps a written record of why he bought each company, so that he can test later whether the reasons still hold.
Example
A private investor checks whether a software company spends heavily on research and development relative to its sales, and whether profit margins are higher than those of competitors. She uses the answers as a rough Fisher-style screen before reading the annual report. She treats a poor answer as a prompt for more questions, not as a verdict.
Case study
Seen in the real world.
Calder Growth Partners is an illustrative, fictional investment firm that was drawn to a fast-growing maker of industrial sensors. The numbers looked good, but the partners wanted to apply a Fisher-style investigation before committing $3,000,000.
They interviewed customers in three industries, spoke to two former engineers and compared the company's product reliability with that of rivals. Customers described the sensors as dependable, and engineers said the company encouraged new ideas, but one distributor warned that a major client was about to switch suppliers.
The partners reduced their planned investment to $1,500,000 and watched the client situation closely. The illustrative lesson is that scuttlebutt can reveal both strengths and risks that are invisible in the financial statements. The partners wrote the findings into the investment file, so that when they reviewed the holding a year later they could see exactly which expectations had been met and which had not.
Watch out
Common mistakes.
- Treating the fifteen points as a mechanical scorecard, when they are prompts for judgement and research.
- Paying any price for a great company, when even excellent businesses can be poor investments if bought at too high a valuation.
- Copying Fisher's concentration without doing his depth of research.
Questions
People also ask.
What is Philip Fisher best known for?
He is known as a pioneer of growth investing and for his book "Common Stocks and Uncommon Profits".
What is scuttlebutt?
It is the practice of gathering information on a company from customers, suppliers, competitors and others around the business.
How does Fisher differ from Graham?
Graham sought cheap shares with a margin of safety, whereas Fisher paid more for companies with outstanding growth potential.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related