Warren Buffett's Way 2

continued from the last one

Buffett is a blending of the four influences--let us see the second one.

Philip Fisher-- he believes that people can make superior profits by 1) investing in companies with above-average potential and 2) aligning themselves with the most capbale management. to isolate these exceptional companies, Fisher developed a point system that qualified a company by the characteristics of its business and management.

1)--it means that the companies are able to grow sales over the years at rates greater than industry average. the growth in turn ususally was a combination of two factors: a significant commitment to R&D and an effective sales organization.
accordingly, Fish examined comapnies' profit margins and cost analyssi and accouting control. however, reading only the financial reports is not enough to justify an investment.

2) the second touchstone for identifying outstanding companies was the quality of management. the superior management can implement long-range plans while simultanously focusing on daily operation.
one way to determine management's intention, Fisher confided, is to oberserve how managers communication with shareholders. commonly, when business is good, management talks freely, but when business declines, some managers clam up. how management responds to difficulties tells a lot about the company.

many investors are unwilling to commit the time and energy Fisher felt necessary for understanding a company. Fisher found a simple way to reduce his workload--reduce the number of companies he owned. Generally his portfolios includes fewer than ten companies and often three to four companies represent 75% of his entire equity portfolio. Fisher believes that to be sucessful, investors need to do just a few things well. One is investing only in companies that are within their circle of competence.