Common Stocks and Uncommon Profits
How Do I Go About Finding A Growth Stock?
In this chapter, Fisher goes into more detail about how he identifies the best growth stocks in practice.
The first of two steps he practices is to sort out the immensely high number of potential companies to invest in by speaking to competent investors with a proven track record. The advantage of doing this is that, through their daily work, these experts already have a valid opinion on the fifteen points that need to be met before purchasing the stock.
In these discussions, Fisher likes to investigate whether the company is already in or is steered in the direction of unusually high sales, and whether the market the company is operating in is hard to enter for competitors. A company with a strong moat is hard to break.
The second step comes into play once a company has been found for the investment opportunity. The investor should look into the financial statements, analyzing the sales in the income statements, and the debt in the balance sheet. The “Scuttlebutt Method” should be applied, and as many people connected to the company as possible should be contacted. If the scuttlebutt method rejected the stock, he rejected the stock too.
If the stock still qualified, Fisher would then approach the management to fill gaps in his knowledge about the company. Only after all these efforts, he would invest in the stock.
His methods were time-consuming but rewarded him most of the time over the long-run.