Warren Buffett once said he was "85% Graham and 15% Phil Fisher."

Most people study Graham’s value metrics, but they ignore the 15% that actually leads to finding stocks with 10x potential.

I just reread Fisher’s "Common Stocks and Uncommon Profits." Here are 5 lessons on finding the next 100-bagger 👇🏻

———

#1: The Scuttlebutt Method:

Obviously, investors are ill-advised if they put their hard-earned money into businesses without having done comprehensive research beforehand by reading annual and quarterly reports and studying financial statements.

In “Common Stocks and Uncommon Profits,” Fisher goes one step further and introduces the "scuttlebutt" method, where investors gather information about a company not just from financial statements but by talking to competitors, suppliers, customers, and employees, and gathering information firsthand.

"I sought out the leading executives in each industry, read their material, talked to their people, read every publication about them, their competitors and their suppliers."

However, conducting such in-depth research can be time-consuming, so be selective in choosing the stocks to research.

———

#2: 15-Point Checklist Approach

Fisher presents his "15 points" checklist, delineating specific criteria for assessing prospective investments.

This checklist encompasses elements such as the quality of the company's management, its competitive position, the robustness of its research and development, and its financial strength.

Fisher underscores the significance of evaluating these factors comprehensively, advocating for a holistic approach rather than relying exclusively on quantitative metrics.

You can find the checklist attached below 👇

———

#3: Importance of Management:

Fisher emphasizes the significance of competent and trustworthy management in a company.

He suggests investors thoroughly evaluate the quality of the management team before investing.

"The most critical investment factor is management."

He underscores the necessity for management that prioritizes long-term value creation, innovation, and a dedicated commitment to shareholders.

According to Fisher, investing in companies with exceptional management significantly enhances the likelihood of attaining outstanding investment returns.

———

#4: Look for Companies With Large TAMs

Fisher suggests looking for companies with large total addressable markets (even though he did not use that term) as those businesses offer the best chances of homerun-returns.

However, oftentimes revenue growth will be volatile and come in “uneven spurts rather than in smooth year-by-year progression.”

Management plays an important role too, as they are responsible for recognizing growth opportunities in already existing or adjacent markets.

All in all, investing in scalable companies allows investors to partake in their growth, potentially yielding returns above the average.

———

#5: Market Timing

Fisher is skeptical of market timing. More often than not, it is a counterproductive activity and will harm investors’ returns.

He suggests that the market is unpredictable and investors should focus on the fundamentals of individual companies rather than trying to time the market.

"The stock market is never obvious. It is designed to fool most of the people, most of the time."

———

Bonus (#6): The Hullabaloo about Dividends

Way too many investors express a preference for selecting stocks with high dividend yields (Fisher calls it the “hullabaloo about dividends”).

But this may not necessarily be the optimal choice.

The crucial factor is whether the company is utilizing its underlying capital to provide the highest possible value.

Companies that forgo dividend payments to reinvest capital in constructing new facilities or developing products are often better positioned to deliver robust returns in the future.

An emphasis on future growth may be more advantageous than small dividends.