Hello friends, in today’s article we see how to find growth stocks from chapter 10 how I go about finding growth stock of book common stocks and uncommon profits. In chapter 10 Philip A. Fisher explains, how they find the growth stocks. so let’s see step by step
Philip A. Fisher says finding growth stocks and doing these things take a great deal of Time, Skill, and Alertness.
Philip A. Fisher says, ” This is what it is, there is no easy way to find growth stocks.”
So there are thousands, of stocks in dozens of industries that could qualify as worthy of more intensive study.
How do decide which stocks to investigate further? given these question answers, Philip A. Fisher gives the following points:
a) you can decide stock to investigate further by talking to business executives and scientists. Philip A. Fisher says, ” 20% of ideas and 16% of purchases come from this source of people.
b) You can also decide stock investigate further by talking to able investment men across the country with impressive records. Philip A. Fisher says, ” 80% ideas and 84% purchases come from this source of peoples.
The Authors( Philip A. Fisher) looks for some key matters while talking to these people in order to decide whether to investigate further or not.
for example any company
- Is this company being steered towards the line of business having opportunities for unusual growth in sales?
- would it be easy for newcomers to enter these business lines and displace leading units?
If sales growth easily growing and new companies easily not enter this business line.
Then the author ( Philip A. Fisher) investigate further this company. If this company is not true on the above question then the author rejects that company. (How to find growth stocks)
When Mohnish Pabrai meets charlie Munger then charlie says, to successful investing you have to see what able investor doing and what to buy and then you can investigate further of that stocks. the same author also does before this great investor.
from this your work is simple and then you can not have to investigate 1000 of the company for one idea and this is not easy to investigate 1000 of the company. so use this method.
The Author decides by talking about these two types of people, which the company has to investigate. after this author gives
What to Do Next:-How to find growth stocks
After deciding which companies to investigate further, the next step is following:
A) What The author doesn’t do this:
- The author doesn’t approach management at this stage.
- He doesn’t go over part annual reports for hours and hours and making minute studies of minor year-by-year changes in the balance sheet of the compnay.
- The author doesn’t ask every broker about the broker’s opinion on the stock of the company.
So what to do author give below:
B) What The author does do this:
- The author does a Glance over the balance sheet to determine the general nature of capitalization structure and financial position.
- And they also Read SEC prospects for the breakdown of sales by product lines, competition degree of promoter ownership, profits margins, the extent of research activity, the abnormal or non-recurring cost in prior year operations. (How to find growth stocks)
Then the author uses the scuttlebutt method as best as he can use this method.
In this, The author meets every key customer and supplier, competitors, ex-employee, and scientists to find answers to the 15 points.
the author meets him with common friends and if they can’t meet them, then they reject the company.
If you want to meet these key people so don’t meet general call or direct meeting, for this purpose you have to call them officially and assure them their name never come anywhere, then you get 15 points solutions.
Some people think, how management meet me, so for author says,” Management doesn’t see how much you can invest in a company, they only see the how much confidence you have about this stocks.”
after meetings key peoples then the author gives what to do next as following:
Then author approaches the management to fill the gaps in 15 points they get information from the key peoples.
The author says, ” Scuttlebutt method helps to you know the strengths and weakness of a company, so you can ask to meet specific officers of the company.”
For example, if Scuttlebutt’s method tells you there is some trouble in the marketing division, you can ask to meet people from the marketing division to find out whether they are doing something to improve the situation or not.
the author gives advice to us, say ” never meet the management of any company until you have first gathered together at least 50% of all the knowledge you need to make the investment.
The amount of time management will give you depends on the company is an estimate of your competence than the size of your financial interest. (How to find growth stocks)
It is wise to be introduced to management by the right people.
- The companies considered as idea bought from 250 ideas, then choose one
- Those companies investigated actually bought from 40 to 50 ideas, then choose one.
- the companies visited to meet management actually bought from 2 to 2.5 idea, then choose one
This is because the Scuttlebutt method gives a completely accurate picture of a company on 15 points. If the author decides to meet the mangement. so there is a high chance is to buy that stocks.
from the above deep process, the author choose the company or find the growth stocks
In the shot above process, I make the summary process format of finding growth stocks
Summary of Process:-
- 20% of ideas come from friends who are business executives and scientists, and 80% of ideas come from a small number of able investment men.
- Brief scrutiny of few point in SEC prospectus, scuttlebutt method aggressively for 15 points.
- Contact the management only in occasional cases when 15 points are qualified by the company reasonably.
- If hopes confirmed as fear cases after meetings with the management, then buy that stocks. (How to find growth stocks)
Now people ask others and say’,” How can someone be expected to spend so much time finding just one investment.”
So answering these questions the author give, ” In what other line of activity, you put $ 10,000 in one year and then years later it becomes $ 40,000 to $ 150,000.”
So reading this you get the mindset of following Philip A. Fisher’s method of finding growth stocks.
So this is all about chapter 10 of the common stocks and uncommon profits book.