Conservative Investors Sleep Well
Uploaded by
ScribdTranslationsConservative Investors Sleep Well
Uploaded by
ScribdTranslationsConservative investors sleep well
The provided text is a URL, and it cannot be translated.
By Phil Weiss (TMF Grape)
Translation and adaptation of BE-
December 26, 2001
Many of our buy-and-hold rules come from the investment philosophy of Rule.
Makers are derived from the writings of Philip Fisher, one of the most important investors.
influential figures of all time, today I would like to talk a little about the book of
Fisher, Conservative Investors Sleep Well.
In this book, Fisher focuses on the characteristics of investments.
conservatives. By conservative, Fisher means an investment that should
to conserve (or maintain) purchasing power at minimal risk
investments in four dimensions, which I will refer to as 1) marketing; 2)
people; 3)singularity; and 4)evaluation. Let's go through each of them.
Marketing
The first dimension relates to the superiority of production, research of
marketing, and financial skill. The best measure of superior skill of
production is gross margin. Fisher wants to invest in companies that are
low-cost producers or able to produce at a cost in line with their
competitors. This resembles a bit our desire to invest in
companies that have a gross margin exceeding 50%, such as
defined in our CriterionRule Maker.
The reasons for Fisher to look for low-cost producers are the same as those
Ours. Being a low-cost producer allows the company to have more chances of
survive in a bear market. It also allows the company to generate
internally a significant portion of the funds needed to finance its
growth in the future. Fisher reminds that being able to finance growth is
starting operations reduces the need for the company to issue more shares or create
new debts. He believes that the payment of fixed interest, which comes from the
debts, significantly increases the wealth of the action. We agree.
The only difference between our focus and Fisher's gross margin focus is that it
only requires that the company be the leader in its industry - with any
gross margin. Our focus, in turn, is on light businesses that can
double your costs to produce your products (gross margins
above 50%).
Fisher also spends a reasonable amount of time looking for big teams from
marketing and a large sales force. A company with strong marketing is one that
that is always ready to respond to the needs of its consumers
providing them with what they need today, and not what they needed
yesterday. This means that they are able to respond quickly to the change
of the taste of its consumers. This also means that the company is capable of
keeping your consumers aware of the advantages of your products and services.
Fisher is also looking for companies that invest in research of
new technologies. New technologies usually offer opportunities for
to produce new and better things, as well as to carry out services in a manner
better or at a lower cost. It is also important that this team
research work together with the marketing team to ensure that your work
be aligned with what the market is wanting right now.
According to Fisher, financial skills are also critical in the process.
It is important for a company to know, with some degree of precision, how much
it costs to manufacture a certain product. If it doesn't do this, it won't know where to focus
to achieve maximum gains. Even more, the conservative accounting and the
Careful projections are a necessity in Fisher companies.
And there's a little more...
2.People
Fisher calls this second dimension 'conservative investment' of fact.
people. What the investor is looking for here is a Chief Executive Officer (CEO)
that is dedicated to long-term growth and surrounds itself with a team
of extremely competent people who take care of the various divisions and
functions within the company. Moreover, the company must have talent
sufficient within your ranks to self-promote.
It is also important to create a work environment that makes
workers of all levels find the company a good place to be
work. As a general rule, those workers who are happy with their place
workers have better results than those who are not. Strikes
recent events in companies such as those that occurred at General Motors and at
Northwest Airlines are examples of situations that can cause problems for the
company and its owners.
3.Singularity
The third dimension focuses on whether the company is capable of doing certain
things that others cannot do so well. The focus here is whether the business
has certain inherent characteristics that allow it to be profitable
above average, not only in the present but also in the future. One way
by which this can be measured is in the form of profit margins that we
we look for companies 'Cash Queens'. To have a high margin of
profits help in future growth.
Part of the profits earned by the company should be invested in
activities such as research and development, marketing testing, marketing of
new products, and all other operational costs necessary to expand the
business. In any case, it is important to remember that companies make mistakes.
Although we all wish to succeed, we must pay attention to the fact that this
it may not happen. The company must be able to finance, survive and
learn as much from your successes as from your mistakes.
4.Valuation
The fourth dimension relates to evaluation. Fisher places the basic risk of
all investments on a scale. At the bottom of the scale are those
companies that performed very well in the first three dimensions and that did not
are highly regarded by the financial community. The less risky
are those companies that performed well in the first three characteristics and
they are being sold in line with their fundamental characteristics.
A step ahead of this group are those companies that are equally
strong in the first three dimensions, but are not looked upon very favorably by
financial community and appear to be undervalued. Fisher believes that
this type of investment fits better in 'maintenance' than as
purchase. The biggest reason for him to believe that it is worth keeping is that his
fundamentals are still genuinely strong, so through the times they
they will probably increase their profits in such a way that justifies not only the
current prices, but also higher prices.
When it comes to actionsRule Maker, we believe that, even if an action
fall into this group, it can be considered as an initial purchase. Although,
when we add more money to our shares, as a general rule, we will be
adding those groups that fit into the first two risk criteria
of Fisher.
Below these three groups are any companies that do not fit into the
Fisher's criteria. He reminds us that you will not be able to make an investment.
smart in a mediocre company if you are buying it for the long term
deadline. It doesn't matter what the stock price is. We agree.
