I don’t want a lot of good investments; I want a few outstanding ones. If the job has been correctly done when a common stock is purchased, the time to sell it is almost never.” – Philip Fisher
Fisher is a fan of owning just a few individual stocks. He was under the impression that if you screened your stocks very carefully, then you only needed a few to successfully maximize your return. If you knew that the five stocks that you invested in were the best, then diversifying in five hundred stocks would dilute your gains and even them out to a respectable, small rate of return. The problem is that very few of us can pick those five diamonds in the rough. So, we need the safety that diversification brings us. One of the main “take aways” is that you need to do your homework to pick the very best individual stocks to be a part of your portfolio.
“I remember my sense of shock some half-dozen years ago when I read a [stock] recommendation to sell shares of a company . . . The recommendation was not based on any long-term fundamentals. Rather, it was that over the next six months the funds could be employed more profitably elsewhere.” – Philip Fisher
To call Fisher a “long term investor” would be an understatement. If he did not have to sell the stock at all, Philip Fisher would have been perfectly happy. While holding an investment for the rest of your life may be impractical, you should approach all of your investments with that thought in the back of your mind though. You should be investing for the long term, three to five years, at least. You should look for companies that have great prospects for the next five years. Most investors should not be jumping in and out of stocks and mutual funds in the short term.
“The stock market is filled with individuals who know the price of everything, but the value of nothing” – Philip Fisher
We should all be skeptical. You should be cautious with your money. Anyone can tell you the price of a stock, mutual fund, or other investment. But, it is very hard to understand the intrinsic value of a company. According to classic finance and portfolio theory, a company’s stock price is the present value of that company’s future income stream. Do the prices quoted online and in the newspapers really get at the heart of what a company is really worth? How much current events and short term news stories are factored into that company’s stock price? How much of its long term prospects is factored in? Probably not very much. Do you really know what you are buying? Do you know or think you know a company’s true value and not just its price?
Who Was Philip Fisher? Philip Fisher is considered a pioneer in the field of growth investing. Philip Fisher wrote the first investment book ever to make The New York Times bestseller list, ‘Common Stocks and Uncommon Profits“. The book laid out senior Fisher’s 15-point strategy for finding great long-term growth stocks. Fisher’s 15-point approach attempts to determine whether a company can continue to grow revenue for several years, maintain strong profit margins, and has a high-quality management. Fisher’s methods were so unique and convincing for that period of time that Warren Buffett incorporated a good deal of Fisher’s methods into his own stock selection process. Warren Buffett has said on different occasions that “he is 85% Graham and 15% Fisher”.
Do you have your own favorite investing quote or a favorite investor that you would like to see in this series? I would love to hear it. Please drop me a line in the comment section below or e-mail me.
Note – This is a part of a series of posts every Wednesday on the blog featuring quotes about investing from famous investors and people in finance. Check out the entire series of Famous Investors’ Quotes.