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Reflecting on his ideas to further hone his investment philosophy Philip Fisher, in the 1940s, decided to concentrate on finding unusual companies which had the possibility of significant growth and earnings and to restrict his client group to a few large investors (12 was the maximum number of clients Fisher had during the 1950s and 60s).
He also decided that the chemical industry would enjoy substantial expansion after the war, and set about finding the most attractive large chemical company. Researching the chemical industry to find out everything he could about the companies and their managements, he talked to anyone who had some knowledge of the industry.
All the qualitative pieces of information (e.g. innovations, inventions and competitive conditions) that he had gathered were added to his analysis of financial data. We are talking about months of work here, not the few minutes some share punters allocate.
Dow Chemical
By spring 1947 he had managed to single out one firm which met all his criteria – this was Dow Chemical Company. The reasons for his choice are:
- A culture of high achievement as a team. As he began to know people in the Dow organization, he found there was a very real sense of excitement at many levels of management about the growth that had already occurred, about their accomplishments as a team. A belief permeated the organisation that even greater growth lay ahead. (I’ve experienced this excitement myself in talking to executives at my investee companies – you only get this vital insight if you make the effort to go and speak with them).
- Senior managerial wisdom. One of his favourite questions in talking to any top business executive for the first time was what he considers to be the most important long-range problem facing his company. The president of Dow gave a tremendously impressive answer. This was avoid becoming more ‘military-like’ as they grow very much larger, to resist becoming bureaucratic and to maintain the informal relationships whereby people at different levels and in various departments can continue to communicate with each other in an unstructured way.
- A focus on those areas where they had a special competence and refusal to step outside of that circle of competence. Dow only worked in those areas of the chemical sector where it either was already or had a reasonable chance of becoming the most efficient producer in the field. This might be as the result of greater volume, better engineering, a deeper understanding of the product or for some other reason.
- A strong research and development ………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
