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From The Archives: Warren Buffett And Phil Fisher Value Interview

By Rupert Hargreaves. Originally published at ValueWalk.

A Forbes special from the archives featuring a Warren Buffett and Phil Fisher interview.value  

Phil Fisher is probably one of the greatest investors who ever lived. Indeed, even Warren Buffett claims to have been influenced by the money manager once that he is ‘85% Graham and 15% Fisher’ (although today it could be argued that Buffett has switched these percentages round to be 85% Fischer and 15% Graham).

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Warren Buffett

Fisher is probably best known for his book Common Stock and Uncommon Profits, which at the time of publication was groundbreaking. In the book, Fischer promoted the process of investigation of being the key to successful investing. He coined the term ‘scuttlebutt’ which is probably the most essential aspect of his investment philosophy.

‘Scuttlebutt’ was the process of going beyond the financial statements or company disclosures and investigating the internal and external stakeholders of the company to get in-depth information and wider perspective on the business to realize growth potential.

Fisher famously used a 15 point checklist to determine the long-term growth potential of a company, believing that if a company met all these 15 criteria, over the long-term profits would be guaranteed regardless of any short-term losses.

“When I met him, I was as impressed by the man as by his ideas. Much like Ben Graham, Fisher was unassuming, generous in spirit and an extraordinary teacher. From him I learned the value of the “scuttlebutt’ approach: Go out and talk to competitors, suppliers, customers to find out how an industry or a company really operates.”

“A thorough understanding of the business, obtained by using Phil’s techniques, combined with the quantitative discipline taught by Ben, will enable one to make intelligent investment commitments. I am an eager reader of whatever Phil has to say, and I recommend him to you.” — Warren Buffett on Phil Fisher writing in Forbes October 1987.

In October 1987, Forbes magazine published a Phil Fisher interview. The article also continued additional comment from Warren Buffett, making it a highly interesting resource.

Phil Fisher interview

Phil Fisher Interview

One thing to note that is brought out in the Phil Fisher interview is that unless he had a high conviction about a position, he was not willing to invest. He concentrated all of his firepower in several of his best ideas, similar to the approach Buffett employs today (the two met in the 60s according to the Forbes piece):

“I have four core stocks that are exactly the thing I want. They represent the bulk of my holdings. I have five others in much smaller dollar amounts that are potential candidates to enter this group. But I’m not sure yet. If I were betting today, I’d bet on two and not on the other three.

Each decade up to this one--there hasn’t been time to work it out for the Eighties--I have found a very small number of stocks, 14 in all, starting with 2 in the Thirties, that over a period of years made a profit for me of a minimum seven times the funds I put in and a maximum of many thousands of times my investment.”

Even though at the time of the Phil Fisher interview, he had a relatively concentrated portfolio at the time, he was not afraid to branch out. He understood the need to let winners run and cut the losers as fast as possible:

“Now I have gone into about three to four times as many additional securities in which I’ve made more money than I’ve lost. I’ve had losses, in two cases as high as 50%. There also have been a number where I have made or lost 10%. That’s almost the cost of being in business. But there are lots of cases where a stock has gone down moderately, and I’ve bought more, and it’s paid off for me enormously.”

And he was not afraid to hold the real winners for many years:

“These efforts were necessary to weed out the 14 where I have made the real gains. I’ve held those 14 from a minimum of 8 or 9 years to a maximum of 30 years. I don’t want to spend my time trying to earn a lot of little profits. I want very, very big profits that I’m ready to wait for.”

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As noted in the Phil Fisher interview, he was a growth investor at heart. However, he did not chase momentum and had a strong contrarian streak. He liked buying out of favor growth stocks at discounts and then holding them for long periods

“Part of real success is not being a 100% contrarian. When people saw that the automobile was going to obsolete the old streetcar system in the cities, some decided that since nobody would want streetcar stocks, they’d buy them. That is ridiculous. But being able to tell the fallacy in an accepted way of doing things, that’s one of the elements in the investment business of big success.”

“It is just appalling the nerve strain people put themselves under trying to buy something today and sell it tomorrow. It’s a small-win proposition. If you are a truly long-range investor, of which I am practically a vanishing breed, the profits are so tremendously greater. One of my early clients made a remark that, while it is factually correct, is completely unrealistic when he said, ”Nobody ever went broke taking a profit.

“Well, it is true that you don’t go broke taking a profit, but that assumes you will make a profit on everything you do. It doesn’t allow for the mistakes you’re bound to make in the investment business.”

One of the interviewer’s final questions to Fisher relates to Buffett’s claim about being 15% Fisher. Specifically, he asks “what’s the difference between Giahamism and Fisherism?” Something Fisher is all too happy to answer:

“There are two fundamental approaches to investment. There’s the approach Ben Graham pioneered, which is to find something intrinsically so cheap that there is little chance of it having a big decline. He’s got financial safeguards to that. It isn’t going to go down much, and sooner or later value will come into it.

Then there is my approach, which is to find something so good--if you don’t pay too much for it--that it will have very, very large growth. The advantage is that a bigger percentage of my stocks is apt to perform in a smaller period of time--although it has taken several years for some of these to even start, and you’re bound to make some mistakes at it. {But} when a stock is really unusual, it makes the bulk of its moves in a relatively short period of time.

The disadvantage of Ben Graham’s approach, as he preached it, is it is such a good method that practically everybody knows it and has picked up the things that meet

The post From The Archives: Warren Buffett And Phil Fisher Value Interview appeared first on ValueWalk.

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