Phil Fisher Growth Investing - 15 Points to Find Outstanding Companies

Most investors think of Warren Buffett when somebody says “growth investing.” Wrong guy. The real father of growth investing is Phil Fisher – a shy, reclusive man who ran a tiny family office in San Francisco, never served more than a dozen clients at a time, and quietly generated spectacular returns for decades. Almost nobody talked about him because he did not want to be talked about. But the methodology he developed is arguably the most complete qualitative framework for picking stocks that has ever been published.

As someone who came from engineering, I appreciate Fisher’s approach because it is systematic. He did not rely on gut feelings or macro forecasts. He built a checklist. Fifteen points. You run every company through it and see what comes out the other end. That is the kind of structured thinking that actually works.

The Philosophy: Find Growth and Hold Forever

Fisher’s core idea is simple to state and hard to execute. The greatest investment returns come from finding companies that can grow sales and profits far faster than their industry for extended periods. When you find one, you hold it. Possibly forever.

He observed that such companies do not need to be young or small. What matters is management that has both the determination to achieve further growth and the ability to execute on plans. Size is irrelevant. Attitude and competence are everything.

Fisher also insisted that patience is non-negotiable. It is often easier to tell what will happen to a stock price than how long it will take to happen. And doing what everyone else is doing – which you have an almost irresistible urge to do – is usually the wrong move. Growth investing, Fisher-style, is inherently contrarian and long-term.

His most famous quote captures the holding philosophy perfectly: “If the job has been correctly done when a common stock is purchased, the time to sell it is – almost never.”

Scuttlebutt: Talk to Real People

Fisher contributed something genuinely original to the investing world: the scuttlebutt method. Named after the water barrel on ships where sailors gathered to exchange gossip, this approach means using every possible source of real-world information before buying a stock.

Talk to management. Talk to competitors. Talk to customers. Talk to suppliers. Every time you shop at a store, eat somewhere, or buy anything, you are gathering data. Browse around and see what is selling and what is not.

A defining question Fisher always asked corporate management: “What are you doing that your competitors aren’t doing yet?” That word “yet” is critical. Most companies, when confronted with that question, realize they are not doing a single thing of significance that competitors are not already doing. The companies that have a real answer to this question are the ones worth owning.

Fisher also used competitors as a scouting tool. He would ask companies which of their rivals were doing exceptionally well. This is a brilliant technique – competitors often know better than anyone who in their industry is genuinely outperforming.

Even if you think talking to management is outside your reach, you would be surprised. Call investor relations, tell them you are a shareholder or prospective shareholder, and most companies will talk.

The 15-Point Checklist

This is the core of Fisher’s methodology. A company does not need a perfect score on all fifteen points, but it should fail on very few. Run every potential investment through this filter.

Point 1: Sales Growth Potential

Does the company have products or services with sufficient market potential to make a sizable sales increase possible for at least several years? Growth does not need to be linear – it comes in irregular spurts. Judge it over multi-year periods, not quarter by quarter. Remove the cyclicality by taking units of several years and comparing those blocks.

Point 2: Product Development Pipeline

Does management have the determination to keep developing new products and processes when current growth engines are exhausted? This is about management attitude, not current business reality. Every product hits a ceiling eventually. The question is whether leadership is already planning the next wave. Companies laser-focused on creating new profit-generating verticals – think Amazon – have the highest long-term potential.

Point 3: R&D Effectiveness

How effective is research and development spending relative to company size? Absolute R&D dollars mean nothing. What matters is R&D as a percentage of sales and, more importantly, what that spending actually produces. One useful metric: how much of current revenue comes from products that did not exist five years ago.

Be careful with raw numbers though. Companies vary enormously in what they classify as R&D expense. One firm calls sales engineering “research.” Another charges pilot plant operations to production instead of research. Accounting differences can make comparisons misleading.

Point 4: Sales Organization Quality

A great product lineup is worthless without a strong sales organization to distribute it. This is hard to measure with ratios, which is exactly why most investors skip it entirely. Fisher recommended using the scuttlebutt method here. If older products continue showing strong sales growth, a powerful sales organization is probably the reason.

Point 5: Profit Margins

High profit margins matter, but the trap is in low-margin companies. During boom times, weak companies with thin margins see their margins expand far more dramatically in percentage terms than strong companies. This creates a dangerous illusion – the marginal company looks like it is growing fastest. But when the tide turns, those margins collapse just as dramatically.

Fisher’s advice: do not invest in marginal companies. The only exception is when there are strong signs of a fundamental internal change – not just a rising industry tide – that is permanently taking the company out of the marginal category.

Point 6: Margin Improvement

Even the most profitable companies should be actively working to expand margins. Critically, this expansion should not just reflect industry-wide trends. When an entire industry sees margins expand from price increases, it creates conditions for price wars that hurt everyone. Look for companies expanding margins through operational excellence, not riding a sector wave.

Point 7: Labor Relations

Poor labor relations almost always produce poor shareholder returns. The visible cost – strikes and lost production – is only the beginning. High employee turnover means constant training costs. Unmotivated workers mean lower productivity. Managements that view employees as disposable, hiring and firing in large groups based on slight changes in outlook, do not build the kind of workforce that creates lasting competitive advantage.

Fisher looked for companies where employees feel wanted, needed, and part of the business picture. Where management builds up the dignity of the individual worker. These are the companies with the lowest turnover and highest productivity.

Point 8: Executive Relations

A weak executive team can destroy enormous shareholder value. Fisher recommended chatting with executives at various levels of responsibility to get a sense of internal dynamics. Top management should recognize that some friction is inevitable but should not tolerate anyone who refuses to cooperate in team play. Check proxy filings for compensation data – if executives are paid below market, the company likely has a perception problem in the talent market.

Point 9: Management Depth

Small companies can thrive under one brilliant leader, but growth eventually demands deeper management. Fisher observed this usually becomes critical when annual sales hit somewhere between fifteen and forty million dollars (adjust for inflation). A useful benchmark: look at the average tenure of top executives. Multiple senior leaders with decades at the firm suggests the company’s future is in capable hands.

Point 10: Cost Analysis and Accounting Controls

A company that cannot accurately measure costs at each step of its operation is flying blind. Without precise cost knowledge, management cannot set optimal pricing, cannot identify which products deserve special sales effort, and worst of all, might have apparently profitable activities that are actually operating at a loss. For large public companies this is usually adequate. It becomes a more critical check for smaller companies.

Point 11: Industry-Specific Factors

This is Fisher’s catch-all. Every industry has unique factors that can give one company an edge. Insurance costs, patent positions, regulatory advantages, special relationships – these vary by sector. A strong patent position, for example, is usually additional strength rather than the fundamental reason to invest. But sometimes the truly attractive investment opportunity comes from factors not captured in the other fourteen points. Keep your eyes open.

Point 12: Long-Range Outlook

Management must think long-term. This is hard to measure directly, but the scuttlebutt method helps. Are employees measured only on quarterly targets, or is their compensation tied to longer-term objectives? Quarterly earnings calls are revealing – you can usually tell within a few minutes whether a CEO is optimizing for next quarter or next decade.

Point 13: Equity Financing and Dilution

Will future growth require so much new equity that the larger share count cancels out the benefit to existing shareholders? Dilution is the enemy of the long-term investor. A stable or declining share count means every percent of company-wide earnings growth translates to at least one percent of earnings-per-share growth. Even better: look for companies with a strong track record of buying back their own stock.

Point 14: Management Communication

Does management talk openly with investors when things go well but clam up when trouble hits? This is a character test. The best way to evaluate it is to read communications from periods when the company was struggling. Honest management admits problems and explains plans to fix them. Dishonest management goes silent or spins bad news into something unrecognizable.

Point 15: Management Integrity

This is the most important point on the list, and it is the only one Fisher considered non-negotiable. Without breaking any law, insiders can enrich themselves at shareholders’ expense in almost infinite ways: excessive compensation for themselves and relatives, renting personal properties to the company above market rates, routing vendors through brokerage firms owned by insiders, issuing excessive stock options.

Fisher was absolute on this: regardless of how high a company scores on every other point, if there is any serious question about management integrity, walk away. No exceptions.

What NOT To Do

Fisher also compiled a list of investor mistakes to avoid:

1. Don’t buy promotional companies. Hype is not a business model.
2. Don’t ignore over-the-counter stocks. Good companies trade in all venues.
3. Don’t buy based on a fancy annual report. Glossy paper does not equal good management.
4. Don’t assume a high P/E means growth is priced in. Sometimes the market still underestimates how much growth is coming.
5. Don’t quibble over small price differences. If the company is right, a few cents on entry price is irrelevant over ten years.
6. Don’t over-diversify. Spreading too thin means you cannot know any position well enough.
7. Don’t panic on war scares. Historically, these are buying opportunities.
8. Don’t be influenced by what doesn’t matter. Focus on fundamentals, not noise.
9. Don’t ignore time when buying growth stocks. Consider not just price but when to enter.
10. Don’t follow the crowd. Doing what everyone else is doing is usually wrong.

Brief Biography

Phil Fisher was born September 8, 1907 in San Francisco. After graduating from Stanford with an economics degree, he enrolled in the university’s new MBA program but never finished – he headed straight into the investment industry in May 1928.

He started as a security analyst at what would become Crocker-Anglo National Bank, where he had a front-row seat to the 1929 crash and its aftermath. That experience convinced him there was a magnificent opportunity for a specialized investment counseling firm – one that would know the value of things, not just the price.

On March 1, 1931, Fisher founded Fisher & Co. During World War II, while serving desk jobs for the Army Air Force, he spent his spare time reviewing every investment decision – successful and unsuccessful – from the preceding decade. Certain principles emerged that differed from what the financial community accepted as gospel.

After the war, he restructured Fisher & Co. to serve no more than a dozen clients at a time, focused exclusively on major capital appreciation through growth companies. The fund reportedly made amazing gains, consistently outperforming market indices in both rising and declining markets.

Fisher retired in 1999 at age 91. He passed away in 2004 at 96, leaving behind a methodology that has influenced millions of investors worldwide.

Key Takeaways

Build a system, not a feeling. Fisher’s 15-point checklist turns qualitative investing into a repeatable process. Run every potential investment through it before buying.

Talk to everyone. The scuttlebutt method is not optional. Management, competitors, customers, suppliers – real-world intelligence beats spreadsheet analysis every time.

Ask the killer question. “What are you doing that your competitors aren’t doing yet?” If management cannot answer this, the company is not a growth investment.

Hold forever if the thesis holds. The time to sell a correctly purchased stock is almost never. Patience is the single largest determinant of investment returns.

Integrity is non-negotiable. Every other checklist point can be compromised slightly. Not this one. If you doubt management’s honesty, nothing else matters.

Avoid marginal companies. Low-margin businesses look attractive in boom times. They will hurt you when the cycle turns. Stick with the cost leaders in each sector.

Fisher was a quiet man who ran a tiny operation and avoided the spotlight his entire career. But the systematic methodology he developed – combining rigorous qualitative research with extreme patience – has stood the test of time for nearly a century. The 15-point checklist works because it forces you to answer hard questions before you buy, not after.