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|Subject: Philip Fisher and the Honey Jar||Date: 1/16/2001 4:14 PM|
|Author: TMFMycroft||Number: 50894 of 157161|
Philip Fisher and the Honey Jar
I will try from now on to bring the lessons that I have learned from studying Philip Fisher to the message boards in order to try and help the small investor understand some of the wonderful things that can be learned from the Grand Master. This will be my attempt to give something back to Philip Fisher who has influenced my life in such a big way. Every page of "Common Stocks and Uncommon Profits" has something to offer. The ability to see through the meaning on each paragraph, take years of study and experience. Hopefully I will be able to shed some light on what I have learned in the last 17 years of being a Fisher Analyst.
I will attempt to teach Fisher by using the following companies as they are of key interest to me from as an Analyst.
You will notice that all these companies are technology companies. Well for those who don't know Philip Fisher concentrated on Technology companies for most of his career. He was fascinated by them and as I get older, I too have become more and more fascinated by them as well.
Now let us proceed with our Journey into analyzing the work of Philip Fisher.
On page 174 of "Common Stocks and Uncommon Profits"
There is a passage that I find vitally important for every investor to learn;
" In the business world there are but two ways a company can protect the contents of its honey jar from being consumed by the insects of competition. One is by monopoly, which is usually illegal, although, if the monopoly is due to patent protection, it may not be. In any event, monopolies are likely to end quite suddenly and do not commend themselves as vehicles for the safest type of investing. The other way for the honey jar company to keep the insects out is to operate so much more efficiently than others that there is no incentive for present or potential competition to take action that will upset the existing situation"
Lets discuss each company individually as it relates to the above Fisher paragraph.
Intel = is the powerhouse in it's industry, but it is having problems lately because its competitors are breathing heavy down their neck for they have failed in what was always their "secret to success". That being to come out with products that are more advanced then anyone else and to always stays one step ahead of the competition. Unfortunately they have lost that advantage and are forced to play catch up. Whether the P4 will allow them to gain the lead in processor speeds again is yet to be seen. They have such a huge market share that they can afford to make mistakes and still do very well. The honey jar of market share will depend on how efficient they will become. They must be able to bring products forward which are more innovative then their competitors and use their "economies of scale" to crush the competition. That's the way they did it before, but times are different now and they must attack and use their huge R&D budget to stay one step ahead of the pack. It is their game to win or lose in the end
AMD = Is a company that always used to play catch up to the mighty Intel, but now they are beating them on the innovation and on the efficient pricing front. What they still lack though is the power of "Economies of Scale". This cannot be achieved over night but must be gained by expanding constantly and building more factories. I don't see AMD slowing down at all in their attempt to beat Intel. Whether they succeed or not will depend on Intel itself. If Intel does not come to the market first they will allow AMD to get first crack at being installed in the computer companies newest products, thus increasing AMD's trademark and weakening Intel's. This will be a fascinating battle, which will take years to play out. Who will win, I don't know but if Intel doesn't wake up they will find themselves in trouble for AMD is very hungry indeed.
Qualcomm = I am fascinated with Qualcomm for they are such a unique animal. They have such a command of the next big technology in Wireless "3G" that they are sitting in the catbird seat. The warning that Fisher makes above about Monopolies is no more relevant then it is for Qualcomm. The company is basically showing us that they are willing to take the risk of splitting off all other businesses and becoming a sole CDMA royalty house. 3G will be huge and if QCOM's gamble pays off then their investors will do quite well. They have decided to bet the farm on their ability to protect their patents. This increases the risk for the investor but also increases the potential windfall if management is right. Management has done an amazing job of protecting their patents to date. The success of the company will depend on them being able to do so in the future. To date I have not found any way for the competition to bypass this company. Everyone who will use 3G will have to pay QCOM, end of story! Whether this continues will depend on QCOM. They are the masters of their own destiny.
Cisco Systems = has taken a unique approach to their business. They have stopped the competition from going after their honey jar, by simply buying out the competition. This strategy has been highly successful because of the management team lead by John Chambers is extremely efficient with a capital "E". I have always been waiting for the day when they will make a mistake and buy a lemon. The number of deals that they have made is quite staggering when you come to think of it. Especially when you consider that they have not been burned badly by any of them. The problems that Cisco Systems is having now are not the result of their own inefficiency but that of their customers. I am very interested in how John Chambers will deal with the problem of their customers being inefficient. It has definitely put a scare in the investors of the company. But is that realistic for a company that has proven itself time after time. It will be interesting to see how it all will turn out.
Microsoft = is a company that is fighting everyone but the Pope lately. The government is trying to break them up, they are forced to deal with competitors who basically give away their operating systems for free. They are said to be "Evil" by many who hate them. What all these persons fighting Microsoft don't understand is that they got to where they are today for they are one of the most efficient companies in the world today. Their balance sheet is as close to perfect as you can get in my opinion. They have some of the most amazing margins that I have ever seen. The problem with Microsoft is that they are just too good at what they do. Only in America is this considered a fault. Go to Finland and see if the government there will ever bring a monopoly lawsuit against Nokia. Not on your life, for Nokia is considered a national treasure there. Microsoft on its part must learn PR for their arrogant attitude has gotten them in most of the hot water that they are in. I travel around the world quite often and whenever I am abroad and see that everyone is using Microsoft products, I for one am proud to be an American when I see that. If they can only learn some PR then they would be unstoppable.
Nokia = is one of the most efficient companies in the world and compared to their competition it is no contest. Their management has so finally tuned the company that they are able to make predictions going out to 2005. Few managements especially in these times would ever attempt to do so. What makes Nokia so fascinating to me is that they operate in an Industry that is just developing. They are constantly innovating and will continue to do so for decades to come. For every new device that comes out is a new technology. We have 3G then we will have 4G, 5G, 10G etc…. The industry itself will constantly grow because wireless for lack of a better term is the future. Nokia is the top dog for they are the most efficient in the Industry. Their competition constantly makes questionable decisions that lead to massive inefficiencies both on the qualitative and quantitative front. I am amazed as how easy Nokia has it to be blessed with such inefficient competitors. You would think that that would cause their management to slack off and take it easy, but Nokia's management is taking advantage of the situation. This is why I love the company so much for they are the top dog and are still very hungry. This is unique and Fisher teaches us to look for unique situations to invest it.
Over the coming months I will try to analyze various passages in "Common Stocks and Uncommon Profits". It is my all time favorite book and I reread it atleast twice a year. The amazing thing is that I learn something new every time I reread it. It is the only book that I can say that about. All the above was just my humble opinion and one should not take what I have said as investment advice.
It is important for everyone to do his or her own research and not rely on anyone else for investment advice. That would be Un-Foolish and would not go down well with Philip Fisher. He did his own research as I always have.
More to come in the Future.
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