In Common Stocks and Uncommon Profits, legendary investor (and one of the rare people to influence Buffett’s investment style) Philip Fisher provides fifteen questions to ask yourself before investing in a company. These are aimed at identifying the qualitative factors that are associated with well managed companies with strong growth prospects. Here they are:
- Does the company have the products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?
- Does the management have a determination to continue to develop products or processes that will further increase sales when the growth potential of current product lines has largely been exploited?
- How effective are the company’s R&D efforts in relation to its size?
- Does the company have an above average sales organization?
- Does the company have a worthwhile profit margin?
- What is the company doing to maintain or improve profit margins?
- Does the company have outstanding labor and personnel relations?
- Does the company have outstanding executive relations?
- Does the company have depth to its management?
- How good are the company’s cost analysis and accounting controls?
- Are there other aspects of the business, somewhat peculiar to the industry, which will give the investor important clues as to how outstanding the company may be in relation to its competition?
- Does the company have a short range or long range outlook in regards to profits?
- 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?
- Does the management talk freely to investors about its affairs when things are going well but “clam up” when troubles and disappointments occur?
- Does the company have a management of unquestionable integrity?
You can get a copy of Fisher’s book here. What questions do you ask yourself before investing?
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