Philip A. Fisher

Paths to Wealth through Common Stocks : Philip A. Fisher

why stocks go up
1. There is an abnormal amount of assets behind each share of stock.
2. The dividend yield is abnormally high.
3. An increase in cash dividends is coming.
4. A stock dividend or stock split is coming.
5. The stock is abnormally cheap in relation to its earnings.
6. The earnings have been steadily increasing year by year.
7. The earnings are about to increase.
8. The sales are about to increase.
9. An appealing new product is about to be marketed.
10. The company is spending an unusual amount on research.
11. Occasionally (but oh, so very occasionally) because important changes are taking place in the management resulting from the appearance on the scene of one or more individuals of unusual business ability.

Buffett/Munger Filters
1. Margin of Safety (P/E, Equity, Financial Position, Consistency)
2. Circle Of Competence (Yes, No, Too Difficult)
3. Management (Able, Trustworthy, Ownership Oriented)
4. Economic Moat (Durable Competitive Advantage)

Peter Lynch Filters
Stocks I'd Avoid
Hot Stocks
Hot Industry
Favorable Publicity
The Next "Something"
The Whisper Stock
Before they Show a Net Profit
Companies Diworsifying through Acquisitions

The Perfect Stock
It sounds dull - or, even better, ridiculous
It does something disagreeable
It's a spinoff
Institutions don't own it; and the analyst don't follow it
The rumors abound: It's involved with toxic waste and/or the mafia
There's something depressing about it
It's a no-growth industry
It's got a niche
People have to keep buying it
It's a user of technology
The insiders are buying
The company is buying back shares

(cash - longterm debt) /  shares #
P/E less than growth rated

Philip Fisher Filters
    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?
    2.    Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?
    3.    How effective are the company's research and development efforts in relation to its size?
    4.    Does the company have an above-average sales organization?
    5.    Does the company have a worthwhile profit margin?
    6.    What is the company doing to maintain or improve profit margins?
    7.    Does the company have outstanding labor and personnel relations?
    8.    Does the company have outstanding executive relations?
    9.    Does the company have depth to its management?
    10.    How good are the company's cost analysis and accounting controls?
    11.    Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?
    12.    Does the company have a short-range or long-range outlook in regard to profits?
    13.    In the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders' benefit from this anticipated growth?
    14.    Does the management talk freely to investors about its affairs when things are going well but "clam up" when troubles and disappointments occur?
    15.    Does the company have a management of unquestionable integrity?

Kahn Filters
High Management Ownership
No Debt
Below Book Value
Net Cash
Obscure or out of favor
Earning potential

John Templeton
Look for Bargains
Invest at the Point of Maximum Pessimism

J. Paul Getty Investment Advice

The big profits go to the intelligent, careful, and patient investor, not to the reckless and overeager speculator. Conversely, it is the speculator who suffers the losses when the market takes a sudden downturn. The seasoned investor buys his stocks when they are priced low, hold them for the long-pull rise and takes in-between dips and slumps in his stride.

Buy when stock prices are low-the lower the better-and hold onto your securities.

Some stocks I own today are worth more than 100 times what I originally paid for them.

a. Sound stocks, purchased for investment when their prices are low and held for the long pull, are very likely to produce high profits through dividends and increases in value.

b. Highly important among them is the axiom that no one should ever buy a stock without knowing as much as possible about the company that issues it.

c. The average investor should consider buying only such common stocks as are listed on a major stock exchange.

d. Common stocks should be purchased when their prices are low, not after they have risen to high levels during an upward bull-market spiral. Buy when everyone else is selling and hold on until everyone else is buying-this is more than just a catchy slogan. It is the very essence of successful investment.

e. Naturally there have been and always will be dips, slumps, recessions and even depressions, but these are invariably followed by recoveries which carry most stock prices to new highs. Assuming that a stock and the company behind it are sound, an investor can hardly lose if he buys shares at the bottom and holds them until the inevitable upward cycle gets well under way.

f. The investor has to be certain that neither the products of the company in which he invests nor the particular industry itself will become obsolete in a few years.

It follows that the investor must know as much as he possibly can about the corporation in which he buys stock. The following are some of the questions for which he should get satisfactory answers before he invests his money:

1. What is the company's history: Is it a solid and reputable firm, and does it have able, efficient and seasoned management?

2. Is the company producing or dealing in goods or services for which there will be a continuing demand in the foreseeable future?

3. Is the company in a field that is not dangerously overcrowded, and is it in a good competitive position?

4. Are company policies and operations farsighted and aggressive without calling for unjustified and dangerous over-expansion?

5. Will the corporate balance sheet stand up under the close scrutiny of a critical and impartial auditor?

6. Does the corporation have a satisfactory earnings record?

7. Have reasonable dividends been paid regularly to stock-holders? If dividend payments were missed, were there good and sufficient reasons?

8. Is the company well within safe limits insofar as both long- and short-term borrowing are concerned?

9. Has the price of the stock moved up and down over the past few years without violently wide and apparently inexplicable fluctuations?

10. Does the per-share value of the company's net realizable assets exceed the stock exchange value of a common stock share at the time the investor contemplates buying?

There are innumerable fine buys on the market today. Among them are many stocks issued by companies with net realizable assets two, three, four and even more times greater than the stock exchange value of their issued shares.

Another valuable investment secret is that the owners of sound securities should never panic and unload their holdings when prices skid. Countless individuals have panicked during slumps, selling out when their stocks fell a few points, only to find that before long the prices were once more rising.

The veteran investor objectively looks for bargains in growth stocks-  which he buys and holds, and from which he generally reaps handsome profits over a period of years. He bank on the climate- and makes all necessary allowances and takes all precautions so that he can ride out any stock market storms.

It is the emotional nonprofessional investor who sends the price of a stock up or down in sharp, sporadic and more or less short-lived spurts. A politician's speech, an ivory-tower pundit's pronouncements or prophecies, a newspaper item or a whispered rumor- such things are enough to trigger wildly enthusiastic buying sprees or hysterical orgies of panicky selling by thousands of self-styled investors. The professional investor has no choice but to sit by quietly while the mob has has its day, until the enthusiasm or the panic of the speculators and nonprofessionals have been spent.

The seasoned investor does not allow temporary fluctuations in stock-market prices to influence his decisions to any great extent. Usually, he waits until prices return to approximately the levels at which he wants to buy or sell. He is not impatient, nor is he even in a very great hurry, for he is an investor- not a gambler nor a speculator.

The wise investor will recognize that many stocks being offered on the market are still considerably under priced. For example, there are many issues selling for as little as one-third or even one-fourth the net, per-share liquidation values of the issuing company's assets. To understand what this can mean to the stockholder, consider the case of the Honolulu Oil Company.

Naturally, shareholders can reap this particular type of windfall profit only when the company concerned is dissolved. But it should be plain to see how much added safety there is in investing in a company that has tangible assets with a net liquidation value greater than the value of its stock. If, as an example, the net liquidation value is three times that of the stock, then in effect, each dollar of the stockholder's investment is secured by three dollars' worth of realizable assets. There are more such companies than one might imagine. They can be found in various industries, but I am most familiar with companies in the petroleum industry and, more particularly, with those engaged in the business of producing oil.

Credit - J. Paul Getty : How to be rich

Buffett-Munger Filters

1. Understand the Business
2. Enduring Competitive Advantage
3. Able and Trustworthy Managers
4. Bargain Price = Margin of Safety

Philip Fisher - Common Stock and Uncommon Profits Checklist

1. Does the company have products or services with sufficient market potential to make possible a sizeable increase in sales for at least several years?
2. Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?
3. How effective are the company's research and development efforts in relation to its size?
4. Does the company have an above-average sales organization?
5. Does the company have a worthwhile profit margin?
6. What is the company doing to maintain or improve profit margins?
7. Does the company have outstanding labor and personnel relations?
8. Does the company have outstanding executive relations?
9. Does the company have depth to its management?
10. How good are the company's cost analysis and accounting controls?
11. Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?
12. Does the company have a short-range or long-range outlook in regard to profits?
13. In the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders' benefit from this anticipated growth?
14. Does the management talk freely to investors about its affairs when things are going well but "clam up" when troubles and disappointments occur?
15. Does the company have a management of unquestionable integrity?

Credit: Philip Fisher - Common Stocks and Uncommon Profits

Stocks I'd Avoid - Peter Lynch

• Hot Stocks
• Hot Industry
• Favorable Publicity
• The Next "Something"
• The Whisper Stock
• Before they Show a Net Profit
• Companies Diworseifying through Acquisitions

The Perfect Stock - Peter Lynch

1. It sounds dull - or, even better, ridiculous
2. It does something dull
3. It does something disagreeable
4. It's a spinoff
5. Institutions don't own it; and the analysts don't follow it
6. The rumors abound: It's involved with toxic waste and/or the mafia
7. There's something depressing about it
8. It's a no-growth industry
9. It's got a niche
10. People have to keep buying it
11. It's a user of technology
12. The insiders are buyers
13. The company is buying back shares

Full Credit to " One Up On Wall Street - Peter Lynch "

Charlie Munger's Investing Checklist

Risk - All investment evaluations should begin by measuring risk, especially reputational.

• Incorporate an appropriate margin of safety
• Avoid dealing with people of questionable character
• Insist upon proper compensation for risk assumed
• Always beware of inflation and interest rate exposures
• Avoid big mistakes; shun permanent capital loss

Independence - "Only in fairy tales are emperors told they are naked"

• Objectivity and rationality require independence of thought
• Remember that just because other people agree or disagree with you doesn't make you right or wrong - the only thing that matters is the correctness of your analysis and judgement
• Mimicking the herd invites regression to the mean (merely average performance)

Preparation - "The only way to win is to work, work, work, work and hope to have a few insights"

• Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day
• More important than the will to win is the will to prepare
• Develop fluency in mental models from the major academic disciplines
• If you want to get smart, the question you have to keep asking is "why, why, why?"

Intellectual humility - Acknowledging what you don't know is the dawning of wisdom

• Stay within a well-defined circle of competence
• Identify and reconcile disconfirming evidence
• Resist the craving for false precision, false certainties, etc.
• Above all, never fool yourself, and remember that you are the easiest person to fool

Analytic rigor - Use of the scientific method and effective checklists minimizes errors and omissions

• Determine value apart from price; progress apart from activity; wealth apart from size
• It is better to remember the obvious than to grasp the esoteric
• Be a business analyst, not a market, macroeconomic, or security analyst
• Consider totality of risk and effect; look always at potential second order and higher level impacts
• Think forwards and backwards - Invert, always invert

Allocation - Proper allocation of capital is an investor's number one job

• Remember that highest and best use is always measured by the next best use (opportunity cost)
• Good ideas are rare - when the odds are greatly in your favor, bet (allocate) heavily
• Don't "fall in love" with an investment - be situation-dependent and opportunity-driven

Patience - Resist the natural human bias to act

• "Compound interest is the eighth wonder of the world" (Einstein); never interrupt it unnecessarily
• Avoid unnecessary transactional taxes and frictional costs; never take action for its own sake
• Be alert for the arrival of luck
• Enjoy the process along with the proceeds, because the process is where you live

Decisiveness - When proper circumstances present themselves, act with decisiveness and conviction

• Be fearful when others are greedy, and greedy when others are fearful
• Opportunity doesn't come often, so seize it when it does
• Opportunity meeting the prepared mind, that's the game

Change - Live with change and accept unremoveable complexity

• Recognize and adapt to the true nature of the world around you; don't expect it to adapt to you
• Continually challenge and willingly amend your "best-loved ideas"
• Recognize reality even when you don't like it - especially when you don't like it

Focus - Keep things simple and remember what you set out to do

• Remember that reputation and integrity are your most valuable assets - and can be lost in a heartbeat
• Guard against the effects of hubris and boredom
• Don't overlook the obvious by drowning in minutiae
• Be careful to exclude unneeded information or slop: "A small leak can sink a great ship"
• Face your big troubles; don't sweep them under the rug

Full Credit to Poor Charlie's Almanack - By: Charlie Munger