More on this book
Community
Kindle Notes & Highlights
Read between
December 13 - December 26, 2023
My book was mostly about craft, not art. With craft, whenever you ask, you get answers. The art is to get more questions—and the right questions—flowing from the answers you receive to prior questions. I've seen people who rigidly run down a standard question list, regardless of the responses they get. That isn't art:
When you can do that well on a real-time basis, you are a composer, an artist, a creative and investigative investor. That is what my father in his prime did best.
But his very best questions always popped out of his mind, unprepared, never having been written down in advance because they were the angle he picked up on the fly, as he heard an answer to a lesser question. Those creative questions were the art. It is what, in my mind, made his querying great.
“What are you doing that your competitors aren't doing yet?”
The emphasis was on the word yet. Staggering. Most folks, when you ask them that question, aren't doing one darned thing of any great significance their competitors aren't already doing and feel awestruck that you asked them this and they hadn't thought of it themselves.
A generation ago, heads of a large corporation were usually members of the owning family. They regarded the corporation as a personal possession. The interests of outside stockholders were largely ignored.
what really counts is a management having both a determination to attain further important growth and an ability to bring its plans to completion.
The past gives us a further clue that this growth is often associated with knowing how to organize research in the various fields of the natural sciences so as to bring to market economically worthwhile and usually interrelated product lines.
the “scuttlebutt” method.
Go to five companies in an industry, ask each of them intelligent questions about the points of strength and weakness of the other four, and nine times out of ten a surprisingly detailed and accurate picture of all five will emerge.
vendors and customers about the real nature of the people with whom they deal. Research scientists in universities, in government, and in competitive companies are another fertile source of worthwhile data. So are executives of trade associations.
source of information will never be revealed.
always important to check carefully into why employees left the company being studied. Only then is it possible to determine the degree of prejudice that may exist
POINT 1. Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?
POINT 2. Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?
Point 1 is a matter of fact, appraising the degree of potential sales growth that now exists for a company's product. Point 2 is a matter of management attitude.
It is the company that has both a good rating on the first point and an affirmative attitude on the second that is likely to be of the greatest investment interest.
POINT 3. How effective are the company's research and development efforts in relation to its size?
quantitative measurements—such as the annual expenditures on research or the number of employees holding scientific degrees—are only a rough guide and not the final answer to whether a company has an outstanding research organization,
asks intelligent questions about a company's research activities of a diversified group of research people,
A simpler and often worthwhile method is to make a close study of how much in dollar sales or net profits has been contributed to a company by the results of its research organization during a particular span, such as the prior ten years.
POINT 4. Does the company have an above-average sales organization?
Without sales, survival is impossible. It is the making of repeat sales to satisfied customers that is the first benchmark of success.
outstanding production, sales, and research may be considered the three main columns upon which such success is based.
An IBM executive recently told me that the average salesman spends a third of his entire time training in company-sponsored schools!
POINT 5. Does the company have a worthwhile profit margin?
I believe that the greatest long-range investment profits are never obtained by investing in marginal companies. The only reason for considering a long-range investment in a company with an abnormally low profit margin is that there might be strong indications that a fundamental change is taking place within the company.
but actually represents even more research, sales promotion, etc., than this.
However, with the exception of companies of this type in which the low profit margin is being deliberately engineered in order to further accelerate the growth rate, investors desiring maximum gains over the years had best stay away from low-profit-margin or marginal companies.
POINT 6. What is the company doing to maintain or improve profit margins?
it is not the profit margins of the past but those of the future that are basically important to the investor.
POINT 7. Does the company have outstanding labor and personnel relations?
The company that makes above-average profits while paying above-average wages for the area in which it is located is likely to have good labor relations.
a situation in which a significant part of earnings comes from paying below-standard wages for the area involved may in time have serious trouble on his hands.
Managements with this attitude do not usually provide the background for the most desirable type of investment.
POINT 8. Does the company have outstanding executive relations?
This means, among other things, that from the lowest levels on up there is a feeling that promotions are based on ability, not factionalism.
POINT 9. Does the company have depth to its management?
Most important of these is the delegation of authority.
No matter how able one or two bosses may be in handling all this detail, once a corporation reaches a certain size executives of this type will get in trouble on two fronts. Too much detail will have arisen for them to handle. Capable people just are not being developed to handle the still further growth that should lie ahead.
Does top management welcome and evaluate suggestions from personnel even if, at times, those suggestions carry with them adverse criticism of current management practices?
POINT 10. How good are the company's cost analysis and accounting controls?
If the management does not have a precise knowledge of the true cost of each product in relation to the others, it is under an extreme handicap.
Within these limits he usually can only fall back on the general conclusion that a company well above average in most other aspects of business skill will probably be above average in this field, too, as long as top management understands the basic importance of expert accounting controls and cost analysis.
POINT 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 may be in relation to its competition?
In fact, when large companies depend chiefly on patent protection for the maintenance of their profit margin, it is usually more a sign of investment weakness than strength.
engineering that is constantly improving the product can prove considerably more advantageous than mere static patent protection.
POINT 12. Does the company have a short-range or long-range outlook in regard to profits?
The investor wanting maximum results should favor companies with a truly long-range outlook concerning profits.
POINT 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?
