BUYING stock is often compared to the pin and blindfold system of backing horses yet people often put more time into backing horses - studying form, pedigree, the going and the personnel involved. Buying stock operates under the same principles. Both are risky, but a bit of groundwork goes a long way.
At least, this is what investment guru Philip A. Fisher says. And if the accolades on the back of the book from such luminaries as Warren Buffett are anything to go by, he's been saying the right thing.
In Common Stocks and Uncommon Profits and Other Writings (John Wiley and Sons Inc, £12, reissued 1996) Fisher outlines his basic philosophy which has guided his investment strategy over his lifetime. He started his investment company, Fisher & Co, in the teeth of the Great Depression when money was hard to come by and was not to be wasted.
To avoid such circumstances, Fisher decided that a thorough, conservative, yet not too rigid approach to buying stocks was the right one and this guided his personal investments and those of his clients.
In a readable, exhaustive, but occasionally overly technical book, Fisher breaks down the mystique of buying shares. For those who baulk at the idea ploughing through it all, the lay out is especially conducive to dipping, with clearly identifiable chapters and sub sections.
Fisher tells when to buy, when not to and what to look for. Obviously, he is dealing with the US market but the principles are the same the free market over.
He boils down his own work into what he calls the 15 points and these are the nub of his treatise. They may seem obvious but are invaluable pointers for the neophyte and reminders for the expert.
For instance, he cites the importance of internal labour relations in point seven. Surprisingly, for a gungho, free marketeer, he has no problems with unions. As far as he is concerned, "if it ain't broke, don't fix it" and he warns that bad in house relations will eventually poison a company.
He also stresses the importance of personnel. Good management is worth its weight in gold as far as Fisher is concerned and the steady departure of key personnel is often a warning that a worrying underlying fault is about to be exposed.
A third point, as valid when Fisher wrote the book in 1957 as it is today and a maxim which many companies would do well to live by, is communication. Fisher stresses the importance of telling investors what's going on at all times.
He regards it as a bad move to clam up when thing are not going well. Honesty with the punter is much more appreciated in difficult times than when things are booming and he advises investors to pass on companies with a history of not telling the full story.
Another interesting section of the book is the few pages dealing with what Fisher terms scuttlebut - in more modern parlance, intelligence. Ask enough questions and you will get a good picture of how an individual company is doing.
He suggests employees, former employees, trade associations and government agencies as sources. Anything that fills in the background to a bare bones numbers analysis is worthwhile, according to Fisher. In these days of bottom line decisions, it is refreshing to hear somebody advocate the bigger picture.
Fisher also advocates investing for the long haul. The tyranny of the dividend is something he rails against and cites as examples his own investments in Texas Instruments and Motorola when they were starting out. In for the quick buck is not Fisher's way and he also advises investors not to panic when the market is bearish.
If the company is good enough - it ought to be if you've done your homework and then invested in it - it will survive most crises.
For anybody with stock in the currently volatile American electronics sector, this ought to be reassuring - as long as the Fisher principles have been applied.
