Fisher's Fifteen Points to Look for in a Stock (Part II)

If you have read Part I, congratulations, you have learnt the super important points to obtain the type of investment which in a few years might show a correspondingly greater increase!

Let's continue to explore the next 5 important points from the book "Common Stock and Uncommon Profits" by Philip A. Fisher.

Point 6. What is the company doing to maintain or improve profit margins?

The success of a stock purchase does not depend on what is generally known about a company at the time the purchase is made. Rather it depends upon what gets to be known about it after the stock has been bought.

WOW SO TRUE.

In the age in which we live, rising labour costs (eg manufacturing company like Liihen) result in corresponding increases in raw material and supplies.

Some companies are fortunate that they can maintain profit margin by raising prices as demand for their products is abnormally strong or selling prices of competitive products have gone up even more than their own.

The prospective investor should give attention to the amount of ingenuity of the work being done on new ideas for cutting costs and improving profit margins.

Point 7. Does the company have outstanding labour and personnel relations?

One of the indicator to know the underlying quality of labor and personnel policies is the relative labor turnover in one company as against another in the same area.

Companies with good labor relations usually are the ones making every effort to settle grievances quickly.

Investor might also need to pay close attention to wage scales. The company that makes above-average wages is likely to have good labor relations.

Investor should be sensitive to the attitude of top management toward the rank-and-file employees.

Managements with attitude that nothing is done to make employees feel they are wanted, needed and part of the business picture do not usually provide background for the most desirable type of investment.

Point 8. Does the company have outstanding executive relations?

The company offering greatest investment opportunities will be one in which there is good executive climate that has confidence in their board/chairman.

This also means, that from the lowest levels on up there is a feeling that promotions are based on ability, not factionalism.

Salary adjustments are reviewed regularly so that executives feel that merited increases will come without having to be demanded. Salaries are at least in line with the industry standard.

Understand that it will not be easy for outsider like me to get the information on company's culture, I will just take this point as reference.

Point 9. Does the company have depth to its management?

Those matters discussed in Point 8 are, of course, needed for development of proper management in depth. But such development will not develop unless certain additional policies are in effect.

One of it is the delegation of authority.

Another one would be does top management welcome and evaluate suggestions from personnel, even if those suggestions carry with them adverse criticism of current management practices?

Same as Point 8, it is too difficult for outsider like me to know the company culture in relation to the staff management. I will take this point as a reference.

Point 10. How good are the company's cost analysis and accounting control?

No company is going to continue to have outstanding success for a long period of time if cannot break down its overall costs with sufficient accuracy and detail to show the cost of each small step in its operation. Only in this way will a management know what most needs its attention.

How do we analyse such control?

Detailed cost sheets seldom shown in annual report. As we have limitation in making a worthwhile appraisal of it, investors can only fall back on the general conclusion that a company well above average in most other aspects of business skills will probably be above average in this field, too.

For Final Part, I will be sharing the last 5 interesting points highlighted by Fisher! Stay tuned!

PS: Just a reminder, everything I shared in my blog is for investors, not speculators.