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Saturday, November 08, 2008

Phillip A. Fisher Investing Strategy

The 15 factors that an investor needs to examine in detail are:

1. The market size and growth prospects for a company’s product or services
needs to be large enough to allow for strong sales growth over several years.
This makes sense as markets lacking size and/or potential could ultimately
result in stagnant or flat growth, which would cap the growth of the company.

2. There needs to be an emphasis on research and development to make sure
innovation is at the forefront, to stay ahead of the competition. In this way,
new products are introduced to replace or expand existing product lines.

3. The scope of the research and development should bear relation to the size of
the company. This makes sense as growing companies should see a
corresponding growth in research and development expenditures to stay

4. As far as the sales channels, the company should have an above-average
sales presence.

5. The company should have a worthwhile profit margin.

6. There should be an effort on the part of the company to maintain or
strengthen the profit margins.

7. On the human resources front, there should be excellent labor and personnel
relations between the company and its workers.

8. The company needs to have excellent executive relations.

9. The management structure should be strong.

10. The company’s cost analysis and accounting controls need to be good.

11. Does the company have anything related to its business that gives it an
advantage over its competitors?

12. The company should have both a short-term and long-term earnings

13. Management should communicate with investors regardless of whether the
company is doing well or poorly. Watch out for companies that fail to
communicate when times are bad.

14. Management should have integrity.

15. If the company should ever require the need for equity financing to grow its
business, would there be a dilution impact to current shareholders?

As far as selling, Fisher suggested there are only three reasons to sell a stock:

1. A major mistake was made in the evaluation of the company.

2. The company fails to satisfy the 15 points to the same degree as previously.

3. There is a superior company to reinvest capital but you need to be certain.