If you are a fan of Warren Buffett, then the likelihood of your not having heard of Philip Fisher is quite small. He is one of the very few super investors who have shaped Buffett's investment style.

In his 2013 letter to shareholders, Buffett ranked Fisher's book just after Ben Graham's—

Phil Fisher eloquently made this point 50 years ago in his book "Common Stocks and Uncommon Profits," which ranks just after "The Intelligent Investor" and the 1940 edition of "Security Analysis" on the best lists for serious investors.

Although Philip Fisher is considered a super investor, little is known about him by the public, and he rarely gave interviews. He is widely respected and admired in the global value investing community. He is also known as the "sleazy" Philip Fisher, which means seeking information from competitors, customers, and suppliers, all of whom have vested interests in the company.

He is not one of those who make decisions simply by reading annual reports. He obtained firsthand information about companies from various sources.

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Now, when it comes to following advice, it is wiser to first accept advice on "what not to do" rather than "what to do." So, in the spirit of contrarianism, let me explore some taboos in investing through Fisher's various interviews and writings.

1. Do not buy promotional companies (concept stocks)

I know many people who, despite knowing that every e-commerce company is bleeding, are eagerly waiting for these companies to go public. What they fail to realize is that they lack professional knowledge of how these promotional companies operate, and it is very difficult for a small investor to predict how these companies will behave as public companies.

Fisher advises staying away from such stocks—When a company is still in the promotional stage, all that investors can do is look at the blueprint and guess at the issues and strengths within. This is a much more difficult task. It makes the possibility of drawing incorrect conclusions much greater... There are plenty of amazing opportunities in established companies, and the average individual investor should stipulate that no matter how attractive the promotional enterprise looks, they should not purchase it.

According to Fisher, dabbling in such stocks is a good example of venturing beyond your capabilities, where the chances of making mistakes are very high. These types of companies are hoping to get rich in the future. Unfortunately, due to the lack of any established record of business operations, no one knows how the enterprise will develop through different market cycles. This is a problem suited for professional investors such as private equity groups and venture capitalists. So stay away from me!

2. Do not buy based on the "tone" of the annual report

Many times, the content of the annual report (apart from the financial statements) is written by public relations agencies rather than the management itself. It is not easy to figure this out. Management has a vested interest and tends to be overly optimistic about the company's prospects.

Fisher warns -

We should remember that current annual reports are usually designed to establish good will among shareholders. It is important to go beyond them and delve into the fundamental facts. Like any other sales tool, they tend to put the company's "best foot forward." They rarely provide a balanced and complete discussion of the actual problems and difficulties of the enterprise. They are often overly optimistic.

When management claims that everything is rosy, it should raise a healthy skepticism. Do not ignore the possibility that the truth is being concealed from you, or that management is trying to cover up its problems. Perhaps the intentions of the management are not malicious, but they are truly trapped in the bias of overconfidence. Remember, when it sounds too good to be true, it usually is.

Laura Rittenhouse's "Investing Between the Lines" is a good book for learning how to decode CEO communications.

3. Do not assume that the price-to-earnings ratio has already undervalued future growth

Some people don't even touch the end of a cigarette holder.Fisher suggests that a high price-to-earnings (P/E) ratio should not be blindly regarded as a sign of overvaluation. One should not overlook the fact that a high-quality enterprise with a promising future typically commands a higher P/E ratio than other average companies.

For instance, in India, Nestlé has been a company with an exceptionally high P/E ratio over the past 20 years. Despite this, Nestlé remains a substantial wealth creator. It's not just established companies that exhibit this trait; a relatively new company with a limited history of high-quality earnings might experience P/E expansion due to some fundamental shift in its business.

Fisher writes:

For a stock that has not sold at a relatively high P/E ratio in the past, many investors seem to find it almost impossible to recognize that the P/E ratio at which it is now selling may reflect its intrinsic quality rather than an unreasonable discount for further growth.

Of course, it goes without saying that you should always verify whether recent earnings growth is temporary or indicative of sustainable earnings growth. Professor Sanjay Bakshi has penned his thoughts in this highly insightful lecture on why one should pay for quality. It is a must-read!

4. Don't Be Fixated on Price

Fisher advises:

For small investors who are only interested in purchasing a few hundred shares, the rule is simple. If the stock looks right and the price seems quite attractive at the current level, buy it in the market, paying a little extra. This additional cost is negligible compared to the profits that would be lost by not acquiring the stock. If the stock does not have this long-term potential, I believe investors should not even consider purchasing it in the first place.

Here, there is a caveat for investors who trade large volumes of stock. In their case, the act of buying/selling large blocks of stock at market prices can itself lead to significant price volatility. Therefore, remember that this "buy at market price" approach makes more sense for small investors dealing with relatively small quantities of stock.5. Do not overemphasize diversification

Investors who suffer from a lack of diversification are not many, but the adverse effects of over-diversification are quite severe.

Fisher said -

Investors diversify too much, fearing a stock crash, to the point where they dare not put too many eggs in one basket, leading them to invest too little in companies they fully understand and too much in other companies they know nothing about.

A greater risk than insufficient diversification is investing without fully understanding the stocks. When you have one bad stock, you spread that money into five other bad stocks, which does not reduce the risk at all. It only creates a false sense of security, making your returns worse.

Fisher wrote -

Usually, a very long list of securities is not a sign of a smart investor, but a sign of someone who is uncertain about themselves... An investor should always be aware that he will make some mistakes, and he should have enough diversification so that occasional mistakes will not prove to be fatal. However, beyond this point, he should be extra careful not to own the most, but the best.

6. Do not be afraid to buy during war panics

In this article, Philip Fisher specifically discusses the situation of war, but I believe it applies to any events related to large-scale political turmoil, or even negative news about the macroeconomic situation. In such cases, the first reaction of most people is to rush to sell their stocks.

According to Fisher -

During times of war, panic, or economic crisis, the average investor is often quick to sell their stocks. However, these are often the best times to buy, as the market is likely to be oversold and the prices of quality stocks are likely to be lower than they should be. It is important for investors to remain calm and not let fear dictate their investment decisions. Instead, they should focus on the long-term potential of the companies they are investing in and take advantage of the lower prices to buy more shares.Selling stocks to get cash in the face of threatened or actual hostilities is an act of extreme financial madness... At such times, having excess cash to invest becomes most undesirable, not most ideal.

So when others are fearful, do not shun greed.

7. Do not be swayed by trivial matters

Not everything that can be counted (or measured) counts. Just because you find an interesting fact about stock prices or other related numbers does not mean it will have an impact on future earnings growth or even future stock prices.

Stock recommendation experts fill their research reports with historical data and related patterns. However, you must realize that future growth and earnings do not depend on past prices.

Fisher warns -

The fact that a stock has increased in the past few years has no significance in determining whether it should be bought now. What matters is whether there has been or is likely to be enough improvement in the future to justify a significant reason for a higher price than the current general price.

This does not mean that you should completely ignore past earnings and prices. However, giving them undue importance can lead you down a dangerous path.

8. Do not follow the crowd

The problem with following the crowd is that you become part of the crowd. It feels safe to follow behind the crowd, but it also leads you to the average. And the average person cannot prevent it. Cultivating independent thinking is not easy because the opinions of those around us have a powerful influence on our thoughts. Our brains are bound by evolution, becoming victims of the bias of social proof.If you can overcome this psychological pressure when making investment decisions, you will be able to stand out from the crowd and surpass the average level.

Fisher explains that -

A person should be particularly cautious when purchasing companies and industries currently favored by the financial world, to ensure that these purchases are actually guaranteed — sometimes this may indeed be the case — and that he does not pay a high price for something due to the overly favorable interpretation of basic facts in the current investment trend.

These ideas have been discussed in detail in Fisher's book "Common Stocks and Uncommon Profits." This book should have a place on the bookshelf of every investor.

Fisher's investment philosophy has stood the test of time and continues to benefit investors to this day. I believe it is now clear to you that missing Fisher's book is not a good choice for serious investors who plan to accumulate wealth in the stock market over the long term.