TCS Daily


The Fisher King

By James K. Glassman - April 30, 2004 12:00 AM

When Philip A. Fisher died last month at the age of 96, it suddenly struck me that being a wise and patient stock market guru may be the best route to a long life.

"His career spanned 74 years," wrote his son, Kenneth Fisher, in a column in Forbes. "He did early venture capital and private equity, advised chief executives, wrote and taught." Every month, Phil would read "If," the Rudyard Kipling poem, to remind himself to stay calm and stick to the plan: "If you can keep your head when all about you / Are losing theirs. . . ."

Phil Fisher began managing money in 1931, immediately after Herbert Hoover promised prosperity was right around the corner. He was teaching at Stanford 70 years later. In between, Fisher formulated a clear and sensible investing strategy (which I'll get to in a second), wrote one of the best investment books of all time, "Common Stocks and Uncommon Profits," and made a good deal of money for himself and his clients.

Here are some other examples of how longevity comes with the financial territory:

• Philip Carret was born in 1896, the year the Dow Jones industrial average was launched. He died almost six years ago at 101. In 1928, he founded the Pioneer Fund and ran it for 55 years, during which an investment of $10,000 became $8 million, even after withdrawing all dividends along the way. "Philip Carret," said super-investor Warren Buffett, "has the best truly long-term investment record of anyone I know."

Carret recognized the value of small companies before other experts caught on to them. His book "The Art of Speculation," written in 1924 and reprinted several times, lays down a dozen investing commandments, including "seek facts diligently, advice never." Carret also wrote, "I don't have sense enough to figure out when to go into cash, so we're always fully invested [in stocks]." And, "More fortunes are made by sitting on good securities for years at a time than by active trading."

• Sir John Templeton was born in 1912 in Tennessee, won a scholarship to Yale and went to Oxford as a Rhodes scholar. He started his own investment firm in the depths of the Depression, like Fisher. In 1939, with Hitler gaining in Europe, he bought every stock trading below $1 on the New York and American stock exchanges and quadrupled his money in four years. "Invest at the point of maximum pessimism," he says.

He launched Templeton Growth Fund (TEPLX) in 1954. The fund is still going strong as part of the Franklin Templeton Group, although Templeton no longer manages it. About half the fund's holdings are now in European stocks, 28 percent in American, with a heavy emphasis on energy and utilities. Over the past 10 years, Templeton Growth has returned 11 percent annually on average, six points ahead of the benchmark global stock index.

In 1962, Templeton (later knighted as a British subject) started buying Japanese stocks, which the rest of the world shunned, at prices of just two or three times their annual earnings. By 1970, with three-fifths of his holdings in Japan, he began selling as growth rates slowed. Now 91, Templeton is using his immense wealth to promote achievement in religion, and giving away a million-dollar prize each year.

• When I met Roy Neuberger in 1997, he gave me a copy of his book "So Far, So Good: The First 94 Years." Neuberger, also a brilliant art collector, celebrated his 100th birthday in July. In 1950, he came up with the idea of starting a no-load mutual fund (at the time, funds were charging 8.5 percent upfront), and Guardian (NGUAX) continues to thrive as part of Neuberger & Berman, which, with $55 billion under management, was bought by Lehman Brothers last year.

I like the way Neuberger started his book: "Some people waste their lives in the constant pursuit of great wealth. As a commodity, let's face it, money doesn't rate as high as good health -- and it certainly isn't up there with great art." Still, it's nice to have money, in my humble opinion. And Neuberger clearly agrees. He also says older people gain perspective on finance that younger people lack. "What I learned in 1929 helped me immensely when the stock market collapsed again in 1987," he wrote. "I may well be the only person still active on Wall Street who was working there at the time of both panics . . . and didn't blink either time."

• T. Rowe Price, who built an even larger no-load fund empire than Neuberger, died in 1985 at 83. He didn't make it to 90, but he had a lot in common with the others: He spent his formative years struggling with the Depression, and the lesson he drew was not to stay out of stocks but to own them with equanimity.

I spent a morning in Baltimore with him a few years before his death, and he was particularly enthusiastic about all the depressed growth companies lying around for the picking. In his fine book "Money Masters of Our Time," John Train wrote of Price, "His thesis, briefly, was that the investor's best hope of doing well is by seeking the 'fertile fields for growth' and then holding those stocks for long periods of time."

But back to the "If" man, Phil Fisher . . .

His son wrote that Phil's best advice was to "always think long term," to "buy what you understand" and to own "not too many stocks." Charles Munger, who is Buffett's partner, praised Fisher at the 1993 annual meeting of their company, Berkshire Hathaway Inc. (BRK/A), "Phil Fisher believed in concentrating in about 10 good investments and was happy with a limited number. That is very much in our playbook. And he believed in knowing a lot about the things he did invest in. And that's in our playbook, too. And the reason why it's in our playbook is that to some extent, we learned it from him."

Ken Fisher writes that, in his prime, Phil Fisher actually owned about 30 stocks. One of them was Motorola Inc. (MOT), which Phil bought in 1955 and still owned at his death. Unfortunately, he missed the company's spectacular jump last week (up nearly 20 percent in a single day) when it announced earnings had tripled and revenue had risen 42 percent.

"Common Stocks and Uncommon Profits" was republished last year in a 45th-anniversary paperback edition by Wiley. In addition to the warning against over-diversification -- or what Peter Lynch, the great Fidelity Magellan fund manager, calls "de-worse-ification" -- the book makes three important points:

First, don't worry too much about price. In the first chapter of his book Fisher wrote, "Even in these earlier times [he's talking here about 1913], finding the really outstanding companies and staying with them through all the fluctuations of a gyrating market proved far more profitable to far more people than did the more colorful practice of trying to buy them cheap and sell them dear."

In fretting about whether a stock is cheap or expensive, many investors miss out on owning great companies. My own rule is: quality first, price second. A good example is Starbucks Corp. (SBUX), the coffeehouse chain. In 1996, the price-to-earnings ratio of Starbucks averaged well over 50. Too high? Well, an investor who bought the stock then would have more than quintupled his money. Ever since it became a public company, Starbucks has sported P/E ratios in the forties and fifties (right now, it has a current P/E of 50 and a forward P/E, based on expected earnings for the next 12 months, of 36), but the firm has increased its earnings at a rate of more than 20 percent annually, so the price has risen sharply.

Second, Fisher says that investors must ask, "Does the company have a management of unquestionable integrity?" If not, stay away from the stock. The same goes for mutual fund companies. There are too many choices out there to bother with companies that aren't run by honest, diligent folks.

Finally, Fisher offered the best advice ever on selling stocks. "It is only occasionally," he wrote, "that there is any reason for selling at all."

Yes, but what are those occasions? They come down to this: Sell if a company has deteriorated in some important way. And I don't mean price! Like Buffett, but unlike most small investors, Fisher rarely got transfixed by the daily price, either high or low, of a stock he owned. Many investors sell because a stock has tumbled, getting out after they have lost, say, 20 percent of their stake; others sell because a stock has risen, hitting some kind of "target."

Fisher's view, instead, is to look to the business -- the company itself, not the stock. Start with why you bought shares of the company in the first place (you can't know when to sell unless you know why you bought) -- perhaps because you liked the management and the products and because you thought demand would be strong and competition wouldn't be bothersome.

Now determine whether something has changed for the worse. "When companies deteriorate, they usually do so for one of two reasons: Either there has been a deterioration of management, or the company no longer has the prospect of increasing the markets for its product in the way it formerly did."

For example, as an owner of Starbucks, I would consider selling if the company decided to start opening fast-food hamburger shops or a pizza chain -- businesses in which Starbucks has little expertise. I would consider selling if a powerful competitor began to take market share away from the company. I would put Starbucks on my watch list for a sale if there were significant management changes, but wouldn't sell unless I saw a clear change for the worse.

But I would hang on to Starbucks -- following the Fisher strategy -- if the stock price dropped 20 percent tomorrow. I might even buy more. A stock-price decline can be a key signal: "Pay attention! Something may be wrong!" But the decline alone would not prompt me to sell. Nor would a rise in price. Starbucks doubled between mid-1999 and mid-2000. Time to sell? If you did, you missed another doubling.

Fisher's philosophy is not much different from Templeton's or Price's or Carret's. In fact, in what was probably his last interview, with Bottom Line Personal newsletter in Oct. 1, 1999, Carret may have said it best:

"How long should you hold a stock? As long as the good things that attracted you to the company are still there."

And how long should you listen to long-lived market experts with the calm, grace and insight of Phil Carret and Phil Fisher? Approximately forever.


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