In a wonderful book, “The Great Investors”, the author, Glen Arnold, writes on the sort of things that Philip Fisher avoided in investing.
“Rejecting Companies That Have Made Mistakes
Most of the companies Fisher invested in were technology pioneers. Failures of projects will happen in such firms if they are really striving as they should. Look for a good average success to average failure ratio. If the firm is run by good managers bad performance will be transient. Short-term focused investors have a habit of over-responding to earnings drops: ‘time and again the investment community’s immediate consensus is to downgrade the quality of the management. As a result, the immediate year’s lower earnings produce a lower than the historic price earnings ratio to magnify the effect of reduced earnings. The shares often reach truly bargain prices.
Playing the In and Out Game
Fisher said he could not predict short-term price movements. Imagining that you can look at one of the shares in your portfolio and say that over the next six months I think it will go down and therefore I will sell it now and buy it back again in six months from now is foolish. Equally foolish is the policy of looking for shares not yet in your portfolio that you estimate will rise over the next six months. None of the great investors believe that they have sufficient knowledge to be able to say whether a particular share will be higher or lower six months hence. And yet so many less experienced people think they know! What does that tell you about over-confidence untempered by long experience or learning from the those with greater wisdom? The long-term holder will out-perform the short-term holder.
Full article via Capital Ideas and some more on the book below.
The Great Investors by Glen Arnold.
‘Whether a complete novice, or a professional portfolio manager, The Great Investors will give you access to the mindset and techniques of the most successful investors of our time and more importantly, it will help you avoid mistakes. The Great Investors will have a permanent place on my desk.’
Mark Sheridan , Executive Director, Nomura International PLC
Leading investors such as Warren Buffett, Benjamin Graham, Sir John Templeton, George Soros and Anthony Bolton are known throughout the world. How did these people come to be so successful? Which strategies have they used to make their fortunes? And what can you learn from their techniques?
In The Great Investors, Glen Arnold succinctly and accurately describes the investment philosophies of the world’s greatest investors. He explains why they are the best, gives details of their tactics for accumulating wealth, captures the key elements that led to their market-beating successes and teaches you key lessons that you can apply to your own investing strategies.
From the foreword:
‘There are some very special people who seem to possess an exceptional talent for acquiring wealth. I want to explore not just the past triumphs of these masters, but also the key factors they look for as well as the personality traits that allow them to control emotion and think rationally about where to place funds. How does a master of investment hone skills through bitter experience and triumph to develop their approach to accumulating wealth?’
The Great Investors is the story of a number of remarkable men: John Templeton, George Soros, Warren Buffett, Benjamin Graham, Philip Fisher, Peter Lynch, Anthony Bolton and John Neff. Whether you’re new to investing, have had success in the markets, or you’re a professional investor or fund manger, you’ll benefit from reading about their proven, and successful, trading philosophies.
The Great Investors will show you how to:
- Be a business analyst rather than a security analyst
- Do your homework and develop a broad social, economic and political awareness
- Control emotion so as not to get swept away by the market
- Be consistent in your approach, even when you have bad years
- See the wood for the trees and not over complicate your portfolio
- Learn from your investing
- Be self reliant, stand aside from the crowd and follow your own logic
- Take reasonable risk