Wednesday, February 01, 2017

Fifteen Characteristics to Look for in a Stock

From Common Stocks and Uncommon Profits by Philip A. Fisher:  Here are fifteen questions to answer about a company before buying its stock.:
  1. Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?
  2. Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive produce lines have largely been exploited?
  3. How effective are the company's research and development efforts in relation to its size?
  4. Does the company have an above average sales organization?
  5. Does the company have a worthwhile profit margin?
  6. What is the company doing to maintain or improve profit margins?
  7. Does the company have outstanding labor and personnel relations?
  8. Does the company have outstanding executive relations?
  9. Does the company have depth to its management?
  10. How good are the company's cost analysis and accounting controls?
  11. Are there other aspects to the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competitors?
  12. Does the company have a short-range or long-range  outlook with regard to profits?
  13. In the foreseeable future will the growth of the company require sufficient equity financing so that the large number of shares outstanding will largely cancel existing stockholders' benefit from this anticipated growth.
  14. Does the management talk freely to investors about its affairs when things are going well but "clam up" when troubles and disappointments occur?
  15. Does the company have a management of unquestionable authority?
These are great questions about a company.  (Warren Buffet says he sought out the author after reading this book.) The challenge is being able to answer them well.  I could only accurately answer these questions in great detail for the company from which I retired, after working there 27 years.   I would be hard pressed to have the same due diligence on every company I am considering.

So my modified approach for choosing stocks is to use qualitative relative assessments of the questions based on my experience in the business world.  Stocks that pass this test will be considered for a long term holding.  Another approach I am using is to find a professional manager that uses these types assessments, and invest with them.

Disclosure:  No compensation was received for writing this post.  If  purchases are made through the above link, I may receive compensation as an Amazon affiliate member.

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This is not financial or investing advice. Please consult a professional advisor.

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