Philip Fisher’s Checklist for Great Stocks

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Welcome to Wealth Wednesday!

Dear friend,

Investing legends like Warren Buffett and Charlie Munger have praised Philip Fisher for his unique approach to stock picking. Fisher wasn’t just looking for undervalued stocks—he was searching for businesses with long-term, sustainable growth. His book, Common Stocks and Uncommon Profits, introduced a powerful checklist that helps investors identify exceptional companies before the rest of the market catches on.

I’ve studied Fisher’s checklist extensively, and over time, I’ve found certain principles to be especially useful in my own investing strategy. These aren’t about quick wins. They’re about finding businesses that can grow for decades.

Today, I’ll break down five of my favorite points from Fisher’s checklist and why they matter when looking for the next great stock.

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?

Fisher was all about long-term growth. He wanted to find companies that weren’t just doing well today but had the potential to expand their sales significantly over time. This is crucial because a business that can steadily increase revenue for years—if not decades—is where real wealth is built.

Think about companies like Amazon in the early 2000s. It started as an online bookstore, but its market potential was far greater than that. The company had a long runway for growth as e-commerce exploded, cloud computing took off, and digital advertising became a powerhouse industry.

The key here is identifying businesses with multiple ways to expand. Are they tapping into a growing industry? Do they have the potential to expand internationally? Can they introduce new product lines that build on their existing success?

If a company doesn’t have a massive market opportunity ahead of it, the upside is limited—no matter how strong the business is today.

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

A company with a great product today isn’t necessarily a great investment for the future. Fisher emphasized the importance of businesses that constantly innovate and find new ways to grow, even after their initial success.

Look at Apple. The iPod revolutionized the music industry, but Apple didn’t stop there. They developed the iPhone, then the iPad, then the Apple Watch, and now they’re moving into areas like AI and augmented reality. Their ability to create new revenue streams keeps the business growing long after their original products peak.

This is what separates a company with a short-term growth story from one that can compound for decades. If a company isn't reinvesting in innovation—whether it’s through R&D, acquisitions, or expanding into new markets—it’s a red flag.

As investors, we need to ask: What’s next? If the company’s leadership can’t answer that, it’s unlikely to be a long-term winner.

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

Innovation isn’t just about spending money—it’s about spending it wisely. Fisher wanted to see companies that invested heavily in research and development (R&D), but he also wanted that spending to translate into real competitive advantages.

Look at Nvidia. Their R&D spending has skyrocketed over the years, but it’s not just wasted dollars. That investment has led to cutting-edge GPU advancements, dominance in AI chips, and a moat that competitors struggle to breach. Compare that to companies that throw money at R&D but have little to show for it—those are the businesses you want to avoid.

A company’s R&D efficiency is a great indicator of whether management truly understands how to allocate capital. It’s not just about the size of the budget—it’s about whether that investment turns into real-world products, better efficiency, and sustainable competitive advantages.

If a company consistently reinvests in innovation and stays ahead of the curve, it’s a strong signal of long-term potential. But if it’s spending on R&D just to check a box, that’s a red flag.

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

This is one of Fisher’s most overlooked but critical points. A company can have the best product in the world, but if it can’t sell it effectively, it won’t matter. Strong sales execution separates great businesses from those that struggle to scale.

Take Salesforce, for example. It wasn’t the only CRM software out there, but its sales team was relentless. They built deep relationships with enterprise customers, executed long-term contracts, and created a recurring revenue machine. The strength of their sales organization helped them dominate the market and build a business worth over $200 billion.

Sales isn’t just about closing deals. It’s about creating a system where revenue keeps compounding—whether through upselling existing customers, expanding into new markets, or locking in long-term agreements. Companies with elite sales teams don’t just grow faster—they often maintain pricing power and defend against competitors better.

If a company has a weak or inconsistent sales strategy, that’s a major red flag. Growth isn’t just about having a great product—it’s about making sure the world knows about it and keeps buying it.

5. Does the company have outstanding management with a long-term vision?

A great business needs great leadership. Fisher looked for companies where management wasn’t just focused on the next quarter’s earnings but was building for the next decade.

Take Jeff Bezos at Amazon. In the early days, Wall Street criticized Amazon for not being profitable. But Bezos had a clear vision—he prioritized growth, reinvested aggressively, and built the infrastructure that turned Amazon into an empire. Investors who understood his long-term mindset made fortunes.

Strong leadership isn’t just about having a visionary CEO. It’s about how management allocates capital, treats shareholders, and adapts to industry changes. Are they making smart acquisitions? Do they return cash to shareholders when appropriate? Are they transparent and honest about challenges?

One of the biggest red flags in investing is when leadership starts prioritizing short-term stock price movements over building a durable business. Great management teams don’t chase trends or cut corners to hit earnings targets—they focus on sustainable, long-term growth.

When evaluating a company, I always ask: Do I trust this leadership team to compound my capital for the next 10+ years? If the answer isn’t a clear yes, I move on.

Final Thoughts

Philip Fisher’s checklist is not about finding stocks that will double in a year. It is about identifying businesses that can grow for decades.

The five points we covered today—market potential, innovation, R&D efficiency, sales execution, and strong leadership—are all traits of companies that become long-term compounders. These are not just theoretical ideas. They are the exact principles that have helped investors like Warren Buffett and Charlie Munger build their fortunes.

When I analyze a company, I do not just look at the numbers. I ask myself if this business has the DNA of a long-term winner. If it checks these boxes, it is worth my time. If it does not, I move on.

Great investments are not found by chasing hype. They are found by identifying companies with the right fundamentals, strong leadership, and a clear runway for growth.

Fisher understood this better than anyone, and that is why his principles still hold up today.

Talk to you on Sunday!

Cheers,

Matt Allen

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