Philip Fisher's Qualitative Checklist: 15 Points for Investing Success

Philip Fisher developed a comprehensive qualitative checklist. His 15 points guided his investment decisions. This framework prioritized business quality and management. He believed these factors determined long-term success. He used this checklist to identify superior growth companies.

The 15 Points: Product and Market

1. Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years? Fisher sought large, growing markets. He wanted ample room for expansion. He avoided saturated industries. He looked for products that addressed significant customer needs.
2. Does the management demonstrate a determination to develop products or processes that will still further increase total sales when the growth potentials of current popular products have largely been exhausted? He valued innovation. He wanted companies with a pipeline of future products. This ensured sustained growth. He looked for a commitment to R&D.
3. How effective are the company’s research and development efforts in relation to its size? He assessed R&D efficiency. He looked for a track record of successful innovation. He wanted R&D spending to translate into market-leading products.
4. Does the company have an above-average sales organization? A strong sales force was crucial. It ensured market penetration. He looked for effective distribution channels. He valued companies that could reach their customers efficiently.
5. Does the company have a worthwhile profit margin? High margins indicated pricing power. They also showed operational efficiency. He sought companies that could maintain profitability. This protected them during economic downturns.

The 15 Points: Management and Operations

6. What is the company doing to maintain or improve profit margins? He looked for continuous improvement. Companies needed strategies to control costs. They also needed to enhance product value. He wanted evidence of proactive management.
7. Does the company have outstanding labor and personnel relations? Employee satisfaction was important. It contributed to productivity and quality. He sought companies with low employee turnover. He looked for a positive work environment.
8. Does the company have outstanding executive relations? Harmony among top management was vital. It ensured effective decision-making. He looked for strong leadership teams. He avoided companies with internal strife.
9. Does the company have depth to its management? Succession planning was critical. He wanted a strong bench of leaders. This ensured continuity. It protected against the loss of key executives.
10. How good are the company's cost analysis and accounting controls? Accurate financial data was essential. It allowed for informed decisions. He looked for robust internal controls. This prevented waste and fraud.

The 15 Points: Financials and Outlook

11. Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition? He looked beyond general metrics. He sought industry-specific advantages. This required deep domain knowledge. He used his 'scuttlebutt' method to uncover these.
12. Does the company have a short-range or long-range outlook in regard to profits? He preferred a long-term perspective. Companies focused on short-term profits often sacrificed future growth. He valued reinvestment for future expansion.
13. In the foreseeable future will the company have to raise an appreciable amount of equity capital so that the present common stock owner suffers a significant dilution of his interest? He preferred companies that could fund growth internally. Frequent equity issuance diluted existing shareholders. He looked for strong cash flow generation.
14. Does the management talk freely to investors about its affairs when things are going well but 'clam up' when troubles or disappointments occur? Transparency was paramount. He valued honest communication. He distrusted management that hid bad news. He wanted full disclosure in all circumstances.
15. Does the company have a management of unquestionable integrity? Integrity was non-negotiable. He avoided companies with ethical concerns. He believed trust was fundamental for long-term investing. He sought ethical leadership.

Application and Strategy

Fisher applied this checklist rigorously. Each point required extensive research. He used his 'scuttlebutt' method to gather information for each point. He did not rely solely on public filings. He sought qualitative insights from various sources. He aimed for a deep understanding of the business. Only companies scoring high on most points qualified for investment. He then concentrated his capital in these select few. His strategy involved long-term holding. He believed these superior businesses would compound wealth over time. He avoided market timing. He focused on the intrinsic quality of the business. He would only sell if a company fundamentally deteriorated. This meant a failure on one or more of his 15 points. His checklist provided a structured approach to identifying exceptional growth companies. It remains a powerful tool for discerning investors.