- Paperback: 250 pages
- Publisher: Irwin Professional Pub (November 1, 1990)
- Language: English
- ISBN-10: 1556233841
- ISBN-13: 978-1556233845
- Product Dimensions: 6.2 x 0.8 x 9 inches
- Shipping Weight: 9.6 ounces
- Average Customer Review: 14 customer reviews
- Amazon Best Sellers Rank: #1,546,565 in Books (See Top 100 in Books)
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Super Stocks Paperback – November 1, 1990
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From the Author
The son of author Philip Fisher (Common Stocks & Uncommon Profits), rebel Ken had to make his own way in the investment world. Super Stocks is the product of his unique take on investing in the stock market. Eschewing a good deal of his father's no-numbers approach, Ken popularized the use of the price/sales ratio (PSR) and price/research ratio (PRR) in this 1984 classic that earned him a permanent spot as a columnist in Forbes. Although Fisher hardly invented the price/sales ratio, his emphasis of it is unmatched in investment history, save perhaps Ernie Kiehne, formerly of Legg Mason's Value Fund.
Fisher's Super Stocks is an idiosyncratic romp through the technology heyday of the early '80s. Fisher tells story after story of how high-fliers hit a short-term flame-out he called the "glitch" and the price/sales ratio and price/research ratio got him in at the bottom. Although he only gives quantitative price/sales ratios on technology-related stocks for the 1983 and 1984 time frame, his ability to construct an entire approach to valuation outside of the earnings-preoccupied mainstream still makes for compelling reading. Fisher has not completely escaped his father, though. The guy talks about the businesses he buys in lurid detail, advising investors that to be successful they need to do the same. As rich in investment war stories as it is in knowledge, Super Stocks makes for an excellent read.
Top customer reviews
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The gist is to look behind earnings. How much a company is worth depends on how much business it does and how profitable the business is. Ultimately, sales trend and profit margin determine future earnings and valuation. When a company trades at low P/E, it may not necessarily be a cheap value play; investor should understand if the low P/E is due to low P/S (which reflects market's expectation of low growth - good) or high margin (possibly unsustainable - bad). On the other hand, a high P/E that is due to low P/S plus low margin could be interesting if the company's margin or growth dramatically improves.
Note that the book doesnt advocate buying ANY low P/S stocks (although O'Shaughnessy seems to have found this to work), but only "Super Company" stocks trading at low P/S, where Super Company is defined by high self-sustained growth rate.
The book commented on what factors lead to sustainable high profit margin. It gave a formula to estimate a company's future margin potential, which takes inputs such as a company's market share, the market share of its biggest competitor, and the industry's growth rate. Although I didnt find the result values particularly meaningful - there's probably unlikely to be a one-formula-fits-all answer for the vastly different industries - the factors themselves are quite insightful.
Ken Fisher focuses on the concept of Price to Sales [P/S] ratios as a means of analyzing cheapness in companies. Cheapness, yes, but predicated on the concept that a new product, process improvements, or better management will make more profits from the sales, or improve sales volumes and perhaps profit margins.
Though the examples are from the early 80s, the writing is clear enough that one can get the idea of how it might apply today. You would get the same feeling from Ben Graham's classic The Intelligent Investor, where the examples were from the 50s and 60s, but the truths are timeless.
Why choose this book to review now? Profit margins are artificially high, and will come down somewhat from here, even if they remain above average. How can we find cheap stocks when profit margins are so high? Use P/S, or Price-to-Book [P/B].
My own investing looks at a wide number of valuation figures, but across an economic cycle, I give more or less weight to each variable. When things are bad, I give more weight to P/S and P/B. During the recovery, I emphasize P/E on a forward basis. When the bull market is in full swing, I let industry selection dominate, which gives me more market sensitivity. As another example, I play up EV/EBITDA when buyouts are becoming common, and drop it as a criterion when buyouts are not being funded.
So, unlike Peter Lynch, paying attention to the macroeconomic environment can positively affect your performance, if you do it intelligently.
Super Stocks is very consistent with my eight rules, particularly the rules:
* Stick with higher quality companies for a given industry.
* Purchase companies appropriately sized to serve their market niches.
* Analyze the use of cash flow by management, to avoid companies that invest or buy back their stock when it dilutes value, and purchase those that enhance value through intelligent buybacks and investment.
Fisher spends a decent amount of time on balance sheets, market share, competitive advantage, and use of cash flow for future investment. Though I don't endorse everything in the book, like his price-to-research ratios, there are a lot of good concepts for the average investor to consider, and benefit from.