If the job has been correctly done when a common stock is purchased, the time to sell it is almost never. When he finds a company that satisfies his selection criteria, the longer the investment is held, the stronger the return potential is. The time horizon resulting from this approach is an entirely different ball game. I don't want a lot of good investments I want a few outstanding ones. In the quest to find companies that can generate multi-bagger returns, there is no room for mediocrity. The result of this approach is a focus on qualitative factors just as much as quantitative factors. The cumulative effect of this simple arithmetic should be obvious. In contrast, it is an unusual bargain that is as much as 50 per cent undervalued. The reason why the growth stocks do so much better is that they seem to show gains in value in the hundreds of per cent each decade. Philip Fisher preaches the idea of focusing on fast growing companies with a large untapped potential rather than focusing on bargains. Fisher is known to have greatly influenced the way Warren Buffett and Charlie Munger invest at Berkshire Hathaway ( BRK.A) ( BRK.B). He's the author of Common Stocks and Uncommon Profit (first published in 1958), one of the 5 Books that changed my life as an investor. Using the right side of your brain and expanding your time horizon are key to unlocking the benefits of this strategy.Įnter the legendary investor Philip Fisher. And the research effort it takes is one of the last great edges for investors. Looking for factors beyond the numbers requires more work. Many aspects are not factored in the financial statements, and therefore entirely missing from a valuation metric: The result is often a price target that is merely a few percentage points from where a stock is already trading. An investment is often deemed good or bad by sell-side analysts simply based on a multiple of revenue or EBITDA or cash flow. Valuation techniques are solely numerical, based on relationships to financial statements. In a world where quantitative factors can be gathered by supercomputers in the blink of an eye, too much emphasis is put on valuations.Īs pointed out in this article by John Hempton:Ī decent stock note is 15 pages on the business, one page on the management, one paragraph or even one sentence on valuation. Photo by Mykyta Dolmatov/iStock via Getty Images

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