The New Paradigm Shift that the Investment world is EnteringWe are entering a period in the stock market that no one has ever seen before and will cause the Stock Market to change the way it does business on a daily basis. (The following is the result of a conversation that I had on this subject with a very good analyst at the Fool TMF Bobdog). The reason for this change will come as a result of the new policies put forward by the SEC concerning Fair Disclosure. Fair Disclosure for those who don't know, is when a company is not supposed to give preferential guidance to any special group, such as a major brokerage house or large investor concerning what its future earnings will be, unless they give it to the entire investment community at once.This has not been the way Wall Street has worked in the past. In the old days a Merrill Lynch or Goldman Sachs Analyst would just walk into a companies headquarters, present what he or she thought the estimates would be going forward and the Company would then tell them yes or no as to the accuracy of their numbers. This created a scenario of group think that allowed for the professional investment community to have an unfair advantage. This though also created a certain stability, as when companies missed their estimates they did not miss by much. The latest report by Yahoo has shocked the investment word as the forecast going forward for 2001 was released to the entire investing community with no guidance before hand. If you read the Wall Street Journal today you will find that the Analyst community got it way wrong. For example W.R. Hambrecht & Co. Analyst Derek Brown expected the company to report 59 cents in 2001, but the company said that it would report in the neighborhood of 33 to 43 cents. That is a large miss that would not have been made in the old days for Mr. Brown would have gotten guidance from the Company before the earnings forecasts were released.This is probably one of the reasons that you see so much volatility in the markets these days. Since professional analysts are kept out of the inner circle, they cannot be very accurate, thus they have to actually work very hard to find out what is going on. But the best they can do is guess for no one finds out for sure until the entire investing community finds out. The great companies though have combated this fear and have decided to do things like preannounce product sales or even earnings reports ahead of schedule in order to prevent a group think scenario to develop, when other companies in their industry report terrible numbers. Last year Jorma Ollila of Nokia preannounced his company's earnings prior to Ericsson's earnings report in order to protect his investors. He did the same thing this quarter as he reported actual sales of Nokia phones prior to the Motorola earnings report, in order to keep the entire community informed. The stock fell but then rebounded after the community finally had a delayed realization that Nokia had actually increased sales by 64% in the handset division. This was below estimates that might have been outrageous to begin with. John Chambers of Cisco Systems the other day met with the Investing Community and told investors that the year ahead will be more challenging for Cisco's customers. Now this throws all the analysis forecasts out the window and causes nothing but pain for the professional investor. The result of this new Fair Disclosure policy will be that the Analyst will become more conservative as they cannot get inside information anymore like they used to. Thus if they make wild estimates like they did with Internet companies like Amazon and Yahoo, they will be forced now to take responsibility for those estimates. What the Investment world will see going forward are words like "Quality of Earnings", "Consistency" and "Wise and Experienced Management" being used more often. Qualitative analysis will enter the picture and Analysts will actually have to start doing Scuttlebutt. They will have to knock on doors of suppliers and figure out what is really going on. Everyone is on a level playing field now so the really good analysts will rise to the top and the below average ones will be weeded out. The small investor is seeing first hand what happens when analysts get it wrong or predict scenarios that are unachievable even in the best of times. Companies with management who have no experience or earnings will be judged harshly. I am still not convinced that Value Investing will make a comeback unless it includes an analysis of the management as well. A company like CMGI is trading for about what it has in Cash in the bank, but it has not proven itself to be of value for it is not earning money. Many people including myself have been burned trying to pick a bottom for such companies. A definition of what Value is must be clarified in this new Paradigm. Many analysts will find themselves pointing to the work of Philip Fisher in the years to come for they will need some kind of strategy to follow in order to find out the details that they used to receive from management before this Fair Disclosure Policy came out. I believe that they will be very satisfied with what they find.Which companies will outperform in this New Paradigm. The ones who can successfully answer the following questions;http://boards.fool.com/Message.asp?mid=13968243The key words that will be used in this new Paradigm are ConsistencyQuality of EarningsWise and Experienced ManagementWords that will be discarded are Goodwill5-year growth projectionsFuture Revenue Streams Reality is upon us now and Quality of everything from Earnings to the products themselves will be judged. This is where I believe the future will go, but then again this is just my humble opinion.TMF MYCROFT
Mycroft so far has 25 recs for this post without a single comment on it. I am curious as to whether you guys are actually recommending it, or is getting his friends in TMF offices to just recommend it blindly.
Here is a comment... Good Post!!!! Maz..
Here's another:AWESOME POST, MYCROFT!I read the entire message, including the link, and think it is extremely thoughtful, insightful, well-written and makes more sense than many posts.I also happen to agree that great companies ARE Fisher companies and am very happy that the days of "selective disclosure" are over. The individual investor is making a real impact in the market that will continue for years to come.Ever Thankful to you, Mycroft,Lynda
Mycroft so far has 25 recs for this post without a single comment on it. I am curious as to whether you guys are actually recommending it, or is getting his friends in TMF offices to just recommend it blindly. I am the only one in the office except for the COO who is the hardest working guy at the Fool :-)TMF MYCROFT
I have invested in my 401 at work for several years now. I do that without fail to the fullest extent possible out of every paycheck. I watch it closely, fret over it, then get giddy an light headed, stew over it, laugh about it and then I roll over and go back to sleep. I just recently (less than a year ago) got into buying my own stocks on a limited basis since that's all my income will allow. I read the Fool, the business page, some other publications. I watch CNBC, CNN and various other progams when I have time.The one thing I have been able to ascertain in my muddled, Muggle brain ( if you read Harry Potter ) is that there are a lot of people out there spouting off on the market that don't know what the hell they are talking about. I'm begining to see that the people with the "inside" information can do more harm with just a simple buy or hold and anything to keep the market from focusing on their opinions is a good thing.
Peter: This is "an about time" move.However the analystswill invariably continue the drivel,front running,double speak,self serving junk,prepared for their convenience,and thrown at us as if we did not remember their last ruminate "spin".We are letting this bunchget away with avarice if we pay them any mind what so ever.Certainly there are exceptions but a broad brush is warranted here.There may yet be hope as the Market "appeared" to shrug off the slew of downgrades in recent days.Now this crowd can move Markets and there should be a scintilla of accountability but alas there is none.The recent downgrade of Verticalnet by Wit,Lehman et al is the epitomy of thier conduct.Here it goes from $52.00 to $5.50 and they make their pronouncement.Where were these learned souls at $35 $25 $15.Of course I could go on but i am weary just thinking of what i see and hear from these imposters.
mycroft,ive been broadening my horizons from LTBH to TA to specifically CANSLIM. ive noticed you mentioned Fisher a few times in the past. what is the best book you would recommended for me to get and start reading up on?thanksms
mycroft,ive been broadening my horizons from LTBH to TA to specifically CANSLIM. ive noticed you mentioned Fisher a few times in the past. what is the best book you would recommended for me to get and start reading up on?thanksms Here you go my friend,http://www.foolmart.com/Shopping/Product_view.asp?PRODUCT_ID=047111927X&REF=PGSRead it atleast two times for Fisher Analysis is not easy, but once you get it, the sky will open up for you and you will see the world in a totally different way.This is what a completed "15 Point Fisher analysis" looks like;http://boards.fool.com/Message.asp?mid=12780762Good Luck,TMF MYCROFT
In answer to why this may be evoking such a response...We all have been casting about with somewhat vague ideas about what the changes may mean and how to deal with them on an organized manner. When someone can coalesce these vagaries into a theory or presents the next step in understanding, it surely hits and clears some of the air.It is a little like the single cell animal in pond water scenario. The microscope was there. The spots were detectable to the eye, but no one "saw" them until the theory was presented that they existed.This is like that to me. I do not feel it hits everyone like that, but I am feeling my way along in this investing world and any help like this is a revelation.Thank you for another lesson Mycroft!
"there are a lot of people out there spouting off on the market that don't know what the hell they are talking about."By Jove, he's GOT it! I really think he's finally got it!(Grin)Ray
This though also created a certain stability, as when companies missed their estimates they did not miss by much.I don't agree. It just means that the general public will find out growth estimates at the same time as analysts do, and estimates will be just as accurate in the future as they have been in the past.For instance, you write: W.R. Hambrecht & Co. Analyst Derek Brown expected the company to report 59 cents in 2001, but the company said that it would report in the neighborhood of 33 to 43 cents.Surprise! I have a pretty good hunch the company will earn between 33 and 43 cents for 2001. Analysts will now be able to use this number for future estimates. Their predictions will end up becoming just as good as they have been in the past. The only difference NOW is that the general public gets to find out at the same time as the analyst does--which pretty much dilutes the power of the analyst, but it doesn't make them less accurate.-- Ryan
Ryan,I don't agree. It just means that the general public will find out growth estimates at the same time as analysts do, and estimates will be just as accurate in the future as they have been in the past.Yes and no. Sure, now everyone gets the same quarterly guidance, but analysts no longer call up each month to get running sales and margin guidance. For instance, Nike used to give out regular, intra-quarterly futures orders updates. Now they don't. That means that now analysts have to sit on their numbers all quarter or come up with a really good reason to tinker with their models. Reports aren't going to start out with "in conversations with management," at least not as a reason for increasing quarterly revenues and profits. Analysts have lost some of their regular information sources that gave them a running commentary on a company's performance, at least on the income statement side. This has started to crop up in sales memos where analysts state that the next quarter or whatever isn't very clear. I've read that earnings forecasts have come down, and am now trying to see how true that is. Personally, I expect earnings forecasts to become a bit more conservative in the future, both because of Reg. FD and economic worries. And, if estimates are coming down, that should cause share prices to fall or at least find it more difficult to rise.In the long run, I think this will be good for the market. The fact is that analysts as a whole are a bunch of really smart people. If they are forced to do more of their own analysis (instead of getting info spoon fed from the companies), I personally think the true visibility of the market will improve. But, it's going to take a little while for everyone to digest this move.Best,Bob
For instance, Nike used to give out regular, intra-quarterly futures orders updates. Now they don't.However, that's Nike's choice. They could easily continue giving out such information, but have chosen not to. No big deal. *shrug*-- Ryan
I have never used or made a forecast in my life. Forecasts are like "goodwill", an unimportant item.There are sufficient studies, one in particular funded by S&P if I recall, suggesting that forecasting as opposed to following trends does not bring any superior performance on average.Economic forecasting makes astrology look respectable. The same applies to financial forecasting. Just think back on even 3 months ago.The only entity that has ever "forewarned" me has been technical analysis. Anyone using charts to navigate the waters of stock investment would have seen and acted in September - that something was up with CSCO. For it was then that investors began to "run for cover".Personally, when a stock is fairly or overvalued and the trend breaks down I dont wait around. I lighten.Similarly, when a stock is overvalued and overbought to the degree it was in March/April, I lighten.It is by no means a perfect system. But once I have identified a good company, and the fundamental trend remains solid, it is the price which counts.Know your stocks value, but also be aware that it is the market which decides the stocks price.Just as in the lower $30's I have been increasing my holdings again in the past couple of weeks.Sure there are costs, but the greatest cost is opportunity cost.Most of the time I lighten, I seldom sell out everything.It is essential for any investor to find a method using all the tools available that works for them. No two people are alike, and in investing, one size does NOT fit all - despite all the popular investment theory-babble that abounds, trying to make the average no nothing capable of successful investment.It is easy when the wind is at your back. But like my friend the late formula one world champion James Hunt used to say, its when things are not going smoothly that the skilled stand out.Anyone can learn investment if they have enthusiasm and average intelligence. But it takes time, application and perseverence, like anything worthwhile. Also it is always good advice to constantly revise and be critical of oneself, complacency being a bad partner to the investor.
Somewhere replies to this comemntFor instance, Nike used to give out regular, intra-quarterly futures orders updates. Now they don't.withHowever, that's Nike's choice. They could easily continue giving out such information, but have chosen not to. No big deal. *shrug*Actually. I think it is a BIG deal. Under reg FD Nike cannot call up analysts and tell them without also telling everyone else (including of course their competitors). So Nike (for example) cannot say "going into Christmas that we cut the price on our new XXX shoes and its selling by the truckload now so figure that into your numbers", without Reebok deciding that could do a special promotion with the YYY shoe to conteract this. Thats why John Camber's comments about a "challenging" time were publicised instead of being just whispered to a few analysts and why there was such a hoopla about Cisco asking analysts for their earnings models. There is a lot more equality required now and that makes a difference both to perception and, arguably, to company execution. For example I would guess that Nokia made its sales numbers public when it did precisely to highlight the weakness in Motorolas numebrs the next day. It owuld not surprise me to see other smart managements (including Cisco) trying the same gamemanship. DD
Hello AlaskanBlue:I'm a relative newcommer to this process but am interested in being able to follow the charts. What would you recommend for a beginner in this Tech Analysis stuff?Thanks in advanceCarolyn
I would have published a reply earlier to this great post except that I was so flabbergasted that they let Mycroft out of his Nokia ghetto. (;-)
Mycroft so far has 25 recs for this post without a single comment on it. I am curious as to whether you guys are actually recommending it, or is getting his friends in TMF offices to just recommend it blindly. I recommended this because it was well written andthoughtful. I had nothing to add. I hate beingunnecessary or redundant.Wayne G.
Reply to:TMF MYCROFTGood post regarding to new paradigm of news releases and analyses.Value estimates are built on models that attempt to look into the future and predict revenue, margins and earnings in a form (cash flow, free cash flow, increase in equity, return on equity etc) that allows present discounted values to be estimated. Those models may no longer be the exclusive domain of the analysts, and all (or many) investors will have to become a little more familiar with how value is created and the modeling process that is the basis for determining (estimating) value.I believe that this will be healthy for the market and in the long run will have a stabilizing effect rather than a destabilizing one.29763
So Nike (for example) cannot say "going into Christmas that we cut the price on our new XXX shoes and its selling by the truckload now so figure that into your numbers", without Reebok deciding that could do a special promotion with the YYY shoe to conteract this.Did Nike *ever* tell analysts such details? I don't understand why Nike wouldn't have just said, "Lower your numbers" without an explaination for it. Why would a company like Nike give any information to the public OR analysts except on a need-to-know basis.Assuming Nike DID give out such information to analysts, what was to stop the analysts from mentioning such detailed information in whatever company reports they wrote up?For example I would guess that Nokia made its sales numbers public when it did precisely to highlight the weakness in Motorolas numebrs the next day.Are you implying this is a new phenomena? I thought this has been going on for years....-- Ryan
<<Mycroft so far has 25 recs for this post without a single comment on it. I am curious as to whether you guys are actually recommending it, or is getting his friends in TMF offices to just recommend it blindly.>>Interesting comment above.The concept of "recommending" perhaps means different things to different people.Does it mean that they agree with what is said, or that it ought to be read?It is entirely possible that other TMF apparatchiks, did automatically render a "resounding vote of confidence".However each to his own.Personally I have never seen that many recommendations on one posting, so I did suspect something "funny".In the context of "financial writing" it was in my mind, definitely not worthy of almost 100 postings. LOL!!!Then again, measuring a posting's worthiness based on its apparent popularity, "majority rule", is not the most intelligent approach.I have after all seen postings, "talking" utter economic rubbish, the sort that first year economic students are prone to write, receiving 7 or 8 recommendations.Like beauty it might be in the eye of the beholder, so it is best to approach the matter of recommendations in a phlegmatic way.:-)
Hello CarolynFor a start, I suggest you utilize the following free websites available:To learn the rudimentary indicators of technical analysis: www.equis.comThen use: www.bigcharts.com for free charts.Once you are familiar with this, and discover if it is for you. You can go on to perhaps order books and a program. There is a magazine called "Charts and Commodities" which you might care to browse at your bookstore. At least I think thats what it is called.If you have further queries e-mail me at AlaskanBlue@aol.com:-)
I believe that this will be healthy for the market and in the long run will have a stabilizing effect rather than a destabilizing one.I also believe that the same thing will happen, but in the short run there will be tremendous volatility until the analyst community figures out that they cannot make wild predictions and get away with it, like they used to. In the end we will all benefit from a more rational approach from everyone involved in the process. Managements will also have more time to manage the business instead of talking to analyst's everyday of the week.TMF MYCROFT
AlaskaBob says--Personally, when a stock is fairly or overvalued and the trend breaks down I dont wait around. I lighten. Similarly, when a stock is overvalued and overbought to the degree it was in March/April, I lighten. It is by no means a perfect system. But once I have identified a good company, and the fundamental trend remains solid, it is the price which counts. Know your stocks value, but also be aware that it is the market which decides the stocks price. I have a financial newsletter from Doug Fabian that appears in my email weekly. I don't recall reading specific emails where he suggested selling in September 2000, but emails in late October, November and December suggested he had been harping a cash position from early September when the trendline broke. Perhaps, Mr Fabian did some great charting and correctly saw the downturn. If so, great job on his part. On the other hand, if he picked up the trend in October then I say it was more a timing matter.Perhaps it should be added that DISCIPLINE is a great asset or skill to have. I indeed picked the right time to sell a portion of JDSU in August. My mistake was not having the discipline to just sit tight, which I gather is the argument you are making. Likewise, I find examples like SIFY or CHINA prior to April 2000. Stocks do not become 8-10 baggers in the normal course of trading. Thanks for the informative post.cmfool77
<<there will be tremendous volatility until the analyst community figures out that they cannot make wild predictions and get away with it, like they used to.>>Do I detect a note of resentment in the above passage? Unable to get your CFA in the 7 year period?<<In the end we will all benefit from a more rational approach from everyone involved in the process. Managements will also have more time to manage the business instead of talking to analyst's everyday of the week.>>There is a core naivette in the passage above. The market is and will continue to be random. Volatility has little to do with "news previously unavailable".Who exactly do you accuse of being irrational? Heaven forbid MF! The fact that stocks, especially during the current period rise and particularly fall, is most rational. Why? Study the formulas which calculate the PE and PS ratios for companies and you will have the answer of course.Management will spend just as much time talking to analysts, perhaps even more. Why? Questions of course. Ask an incisive question and the same information will be as forthcoming as before to analysts. Dont have too much faith in regulation FD, it is still in a test phase and there are many ways to cutthe cake. You can change the rules, the game will go as merrily as before.As for why on balance the same amount of time will be spent talking to analysts - its all about capital. Business needs to maintain a good relationship with Wall street. From that relationship many good things spring. You think a broking firm announces a change in rating before taking choice clients out? The same information made public at 10.am has been conveyed to selected analysts at 1.am that morning.Anyone who believes FD to be their "savior" has a lot to learn about the world of finance.They can change the rules, they cannot stop the game. The regulators will always be trying to catch up - poor things.
<<Perhaps it should be added that DISCIPLINE is a great asset or skill to have.>>It is the single most essential attribute, but the most difficult to cultivate, and takes time. You are correct.<< Stocks do not become 8-10 baggers in the normal course of trading.>>I agree here. No one with any seriousness can predict any sort of "bagger".The skill lies in picking good companies with potential. The name of Cisco rolls off many investors tongues with ease these days. I remember in 1996 when I was considered an odd bird for even looking at tech stocks.<<Thanks for the informative post.>>Thank YOU, the pleasure is all mine :-)
<Do I detect a note of resentment in the above passage? Unable to get your CFA in the 7 year period?Sorry, retired at 33 years of age, no resentment here.Who exactly do you accuse of being irrational? Heaven forbid MF! The fact that stocks, especially during the current period rise and particularly fall is most rational. Why? Study the formulas which calculate the PE and PS ratios for companies and you will have the answer of course.The analysts who considered Yahoo a buy at $250, Ask Jeeves at $150, QCOM at $200 etc.....Rationality comes from research not from wild predictions that no company can ever achieve. The volatility that we have now is the result of analyst's predictions of tremendous futures for companies that never made a profit in their lives.They can change the rules, they cannot stop the game. The regulators will always be trying to catch up - poor things. If managements get caught giving information to analysts, then they both will go to jail. Now I am sure some will ignore the rules and few will get caught, but crime does not pay and just the thought of giving up those $million salaries in exchange for a 5X5 jail cell will get some analysts and managements thinking. TMF MYCROFT
<<Sorry, retired at 33 years of age, no resentment here.>>Well, I am afraid your comments come across as resentful.<<The analysts who considered Yahoo a buy at $250, Ask Jeeves at $150, QCOM at $200 etc.....>>Be more specific then. You comments castigated an entire industry.<<The volatility that we have now is the result of analyst's predictions of tremendous futures for companies that never made a profit in their lives.>>What volatility? Cisco is not at all a volatile stock. What have now is a changed macro situation. The effect of negative profit companies is marginal. I assume here you mean negative GAAP?<<If managements get caught giving information to analysts, then they both will go to jail.>>"Caught" being the operative word. Excuse me, but your naivette regarding the world of finance, the business world in general, is displayed by the above comment. Perhaps you should not have retired at 33.
Several points stuck with me after I had finished reading your article "The New Paradigm Shift". First, I have always thought that an analyst should be responsible for what he/she says, whether the estimates are right or wrong. All too often, they are not.Second, what's wrong with analyst having to work a little harder to make sure they get the numbers right?Third, as a long term investor in what I believe are quality companies, I have time to recover if a company misses estimates once or twice along the way; or if there is a management shake-up along the way. Besides, having been a member of the Motley Fool about 6 months now, I am absolutely confident that doing your own homework/research and taking responsibility for your own actions is the way to go. I don't need an analyst to help with that. The way I see it, the only people to get hurt by the full disclosure regulation are Brokerage houses, their lucrative clients, and the "in-side gang" that has always had access to early information, that we "outsiders" have not had. A fair playing field! That sounds good to me.
Thanks for the info. I really appreciate it and will be getting back in touch with you if further clarification will help.Again thanks!Carolyn
This is what I think Mycroft's real sin is:I am still not convinced that Value Investing will make a comeback unless it includes an analysis of the management as well. In this, he makes two errors in one sentence. Value Investing never went away, so it needs not to come back. And who says that value investing does not include an analysis of management? A definition of what Value is must be clarified in this new Paradigm. Oh, really? Value is the net present value of all future free cash flows. How does today's hallucination, or paradigm shift, change this in any way?
<<This is probably one of the reasons that you see so much volatility in the markets these days.>>Jeremy J. Siegel, in his book "Stocks for the Long Run", says that the most volatile year in American stock market history was 1932. Volatility, defined as the Annualized Standard Deviation of Monthly Returns, was above 65% that year. The average for the period 1834-1992 is 15.3%. 1932 also holds the record for the most daily Dow changes of 5% or more -- 32. To put things in perspective, a 5% move in the Dow today, based on Friday's 10,525 close, would be 526 points.Back in 1932 there was no Securities & Exchange Commission. Is volatility today really moving towards levels which prevailed before there was an SEC? I don't think so. I don't think that an SEC full disclosure rule would move it in that direction either.jkm929
(A late followup to the original post.)The latest report by Yahoo has shocked the investment word as the forecast going forward for 2001 was released to the entire investing community with no guidance before hand. If you read the Wall Street Journal today you will find that the Analyst community got it way wrong... (Emphasis added.)I've often wondered why analysts try to out-guess the companies and "whisper" numbers ahead of the companies' actual announcements. (And "guidance" has got to be one of those mysterious marketing terms that seems to have popped up in recent years.) And what earthly difference does it make, really, whether company X does better or worse than the analyst's estimates? After all, the company is the one doing the real business, and the analyst is the one throwing the dice. What counts is how this year's results compare to last year's, and to the competition's.So now, with the new Regulation, it looks like we'll have to settle for the "conference call" the day or so before the announcement, where the companies tell us what they're going to tell us later. It all gets very weird.Somebody along the way addedEconomic forecasting makes astrology look respectable.It may be a toss-up as to which group has the better results.I read a series of articles (probably in theStreet.com) about the role af analysts. The main theme was analyst-as-salesman, but that there are a few (maybe even a couple) that can be trusted to be objective.But all this really isn't about CSCO, so I won't go on any more, unless there's a relevant board somewhere else.
<<I read a series of articles (probably in theStreet.com) about the role af analysts. The main theme was analyst-as-salesman, but that there are a few (maybe even a couple) that can be trusted to be objective.>>What makes TheStreet.com so trustworthy. I really have problems with the "oversight committees" called TheStreet or Motley Fools.They have big mouths when it comes to criticizing Wall street.How much money do they manage?Its rich coming from the MF who still (as far as I know) advocate such nonsense as the PEG measure.As for TheStreet - they are only still going because of venture capital. Their own stock market listing was one of the all time disasters.
There once was a Paradigm, miffed,concerning the speed of its drift.It sputtered and groaned;it muttered and moaned,but never could finish its shift.Let me respond to the following message:http://boards.fool.com/Message.asp?mid=14091853A definition of what Value is must be clarified in this new Paradigm. Many analysts will find themselves pointing to the work of Philip Fisher in the years to come for they will need some kind of strategy to follow in order to find out the details that they used to receive from management before this Fair Disclosure Policy came out. I believe that they will be very satisfied with what they find. Which companies will outperform in this New Paradigm. The ones who can successfully answer the following questions; at which point a link was provided to the 15 Fisher Points. To save space, I will summarize the Fisher's 15 Points. Regarding the company in question, they address the following: (1) the sufficiency of its future sales growth, (2) the adequacy of its new product development, (3) the amount it spends on research and development, (4) the quality of its sales organization, (5) the size of its profit margins, (6) the attempts it is taking to improve or maintain its profit margins, (7) the quality of its labor relations, (8) the quality of its executive relations, (9) the depth of its management, (10) the adequacy of its accounting systems, (11) the existence of industry clues to compare it to its competitors, (12) the dedication for long-range as compared to short-range profit thinking, (13) the assurances that future equity financing will not damage the existing shareholders, (14) the forthrightness of its management's disclosures when trouble occurs and (15) the integrity of its management. Fisher's 15 Points appeared in the book, Common Stocks and Uncommon Profits, which was published in 1958, making it over 40 years new. But, more to the point, do they provide or clarify a definition of Value that can be used in this brave, new world of Paradigm shifts? If so, that means that these 15 Points are somehow inconsistent with Value Investing, or at least ignored by Value Investors. Because if they were not, then they would not provide any utility in clarifying a new and necessary definition of Value. A Value Investor is simply someone who believes that there is a value separate from price. He then attempts to advantage himself of this discrepancy by purchasing an asset when its offered at a price that is less than its value. And what is Value? It is simply the present value of all future free cash flows. ( As an aside, how can this ever become obsolete, or need clarification or expansion? ) To compute this present value, the Value Investor must have an estimate for the amount of the future free cash flows, the years in which that cash will be received, and what discount rate to use. The Value Investor can look at current financial statements and compute an estimate of the free cash flow for this year, but that is the easy part. It is in predicting the future that is difficult. The Value Investor needs to determine amount and the future predictability and sustainability of those cash flows in order to compute a Value amount that is of any validity. So back to my earlier question: does a New Paradigm developed around Fisher's 15 Points conflict with the current and past activity of the Value Investor? I believe just the opposite. I posit that the issues raised in these 15 Fisher Points are absolutely essential to the Value Investor in estimating the amount, the predictability and the sustainability of future free cash flows. Look at the Points again. If you were attempting to determine the future free cash flows of a company, wouldn't you look at its expected revenue growth, product development, R&D, sales organization, profit margins, sustainability of profit margins, labor relations, management integrity, dedication to long-range thinking and all the rest of the 15 Points? If you were not interested in these issues, what is it that would catch your attention? If these items are not important to a Value Investor, what is? And if the Value Investor has always gleefully integrated Fisher's Points into his work, how can these same 15 Points be the program around which a new and necessary clarification of Value is created? But all this talk about developing a new definition of Value around Fisher assumes that Fisher is something apart and different from Value Investing. This is not true, for Philip Fisher is a Value Investor. He is part of the gang. In 1975, Fisher's book, Conservative Investors Sleep Well, appeared. In it, he talked of four dimensions. "The first dimension of a conservative stock investment is the degree of excellence in the company's activities that are most important to present and future profitability. The second dimension is the quality of the people controlling these activities and the policies they create. The third dimension deals with something quite different: the degree to which there does or does not exist within the nature of the business itself certain inherent characteristics that make possible an above-average profitability for as long as can be foreseen into the future.""The fourth dimension of any stock investment involves the price-earnings ratio.""We are now in a position to begin to get a true perspective on the degree of conservatism - that is, of basic risk in any investment. On the lowest end of the risk scale and most suitable for wise investment is the company that measures quite high in regard to the first three dimensions but currently is appraised by the financial community as less worthy, and therefore has a lower price-earnings ration, than these fundamental facts warrant." So what Fisher considers to be the best investment is one that meets all of his other criteria, and is selling for less than its value. Meet Philip A. Fisher, Value Investor. In 1980, Fisher's Developing an Investment Philosophy was published. He summarized his investment philosophy in eight points, the second of which was, "Focus on buying these companies when they are out of favor; that is, when, either because of general market conditions or because the financial community at the moment has misconceptions of its true worth, the stock is selling at prices well under what it will be when its true merit is better understood." Again, this is what is called Value Investing.All of this is an argument that Philip A. Fisher has much to contribute to Value Investing, and always did. So if a New Paradigm for Value is being constructed around Fisher, the New is still the Old. There once was an Old Paradigm,insisting he's still in his prime."I'm not quite dead yet,and I'll take any bet,that I'm new once again given time."
I must say that I would be very supportive of paying a subscription for Fool access in the amount you suggested.
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