A 15-Step Checklist Inspired by Buffett's Overlooked Wisdom

Warren Buffett is often viewed as the ultimate investing crossbreed – the man who managed to combine the best elements of growth and value investing into a compounding machine. 

On the value side, Benjamin Graham is rightly seen as Buffett’s mentor in chief. Meanwhile, Charlie Munger usually gets most of the credit for encouraging his climb up the quality growth ladder. 

The impact of a third figure, Phil Fisher, shouldn’t be forgotten either. In fact, Buffett’s approach is often referred to as being “15% Fisher, 85% Graham", and you’ll often see people calling for those percentages to be flipped. 

The Godfather of GARP 

Fisher founded his investment firm Fisher & Co in 1931 and was an early advocate for two widespread approaches to investing: growth at a reasonable price (often called GARP) and, perhaps most famously, buy and hold. 

To find investments, Fisher employed deep research of a firm’s management, products, competitors and ability to keep finding new ways to grow. He often approached this work in the way a detective would approach solving a mystery – speaking to sources and looking for clues in the real world, as well as in a company’s financials. 

Fisher called this “scuttlebutt” and his efforts paid off handsomely for clients of Fisher & Co, which he managed into his early nineties. 

Luckily for us, Phil Fisher laid out his investing approach in the 1958 classic Common Stocks and Uncommon Profits. For many, the highlight is Fisher’s 15-point checklist for finding companies with the potential to grow their profits (and share price) for a long time. 
 
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Today we’re going to see how one of the ASX’s biggest growth darlings stacks up against those criteria. The company I’ll be putting through its paces is ResMed (ASX:RMD), which is mainly in the business of selling sleep apnea treatment devices. 

How does ResMed stack up to Fisher’s 15 points? 

Does ResMed have the hallmarks of a Fisher buy and hold investment? Let’s start with point 1 on the checklist. 

1. Does the company have products or services with sufficient market potential to make possible a sizeable increase in sales for at least several years? 

• This criterion assesses whether the company operates in a growing market segment where demand is expected to increase significantly over the coming years. 

2. Does the management have a determination to continue to develop products or processes that will further increase total sales potential when the growth of current product lines has largely been exploited? 

• Fisher emphasizes the importance of proactive management that continually innovates and expands the company's product offerings to sustain growth beyond initial successes. 

3. How effective are the company's research and development efforts in relation to its size? 

• This point examines the company's commitment to research and development (R&D) investments relative to its revenues and industry peers, crucial for maintaining competitiveness and driving innovation. 

4. Does the company have an above-average sales organization? 

• Fisher looks at the effectiveness of the company's sales team in driving revenue growth and expanding market share, indicating strong sales capabilities as a competitive advantage. 

5. Does the company have a worthwhile profit margin? 

• Evaluates the company's ability to generate profits relative to its costs and revenues, a key indicator of operational efficiency and financial health. 

6. What is the company doing to maintain or improve profit margins? 

• Considers the company's strategies and initiatives aimed at enhancing profitability, such as cost management, efficiency improvements, and pricing strategies. 

7. Does the company have outstanding labor and personnel relations? 

• Looks into the company's workforce management practices, including employee satisfaction, labor relations, and human resources policies, as factors contributing to long-term stability and productivity. 

8. Does the company have outstanding executive relations? 

• Assesses the effectiveness and cohesion of the company's executive team in driving corporate strategy, decision-making, and long-term business performance. 

9. Does the company have depth to its management? 

• Examines the leadership bench strength and succession planning within the company, ensuring continuity and stability in executive management. 

10. How good are the company's cost analysis and accounting controls? 

• Reviews the company's financial reporting accuracy, transparency, and control mechanisms to ensure reliable financial information and effective cost management. 

11. Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company will be in relation to its competition? 

• Considers industry-specific factors and competitive advantages that contribute to the company's market position, such as proprietary technologies, intellectual property, or regulatory advantages. 

12. Does the company have a short-range or long-range outlook in regard to profits? 

• Assesses management's orientation towards achieving sustainable profitability over the long term through strategic planning and forward-looking initiatives. 

13. In the foreseeable future, will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders' benefit from this anticipated growth? 

• Evaluates the company's capital structure and financing needs to support growth plans without diluting existing shareholders' equity excessively. 

14. Does the management talk freely to investors about its affairs when things are going well and when troubles or disappointments occur? 

• Considers the company's transparency and communication practices with investors, including openness about successes, challenges, and strategic decisions. 

15. Does the company have a management of unquestionable integrity? 

• Fisher emphasizes the importance of ethical leadership and integrity within the management team, ensuring alignment of interests with shareholders and stakeholders. 

These 15 points provide a comprehensive framework for evaluating companies based on their growth potential, management quality, financial strength, and strategic foresight, reflecting Fisher's holistic approach to long-term investing in quality businesses. 

Warren Buffett's investment philosophy, influenced significantly by Benjamin Graham and Phil Fisher, integrates elements of value and growth investing. His approach exemplifies a blend of rigorous financial analysis, deep understanding of business fundamentals, and a long-term perspective, which has made him one of the most successful investors of all time.