Moving on to Part three of Phillip Fisher’s stock investing checklist, let’s look at the next three characteristics that he looks for when analysing companies.
You can read Parts one and two here and here.
7. Does the company have outstanding labour and personnel relations?
This factor explores if the company in question has good relations with its labour unions.
In Singapore’s context, labour unions are not a common phenomenon and the only major blue-chip company that has a union is Singapore Airlines Limited (SGX: C6L).
Nevertheless, labour union or not, you need to figure out whether the management treats its workers fairly..
If this information is not readily available, then you should question the compensation and remuneration structure for top performers.
A well-run company that employees enjoy working for makes for a conducive environment for building a strong business, thereby enhancing shareholder value.
An investor can also visit the company’s website to assess if there are social activities organized for staff members for them to relax and interact in a casual setting.
This is a plus point when evaluating a company as it shows that they have staff welfare at heart.
8. Does the company have outstanding executive relations?
This attribute relates to the company’s focus on performance and its ability to recruit senior management and high-ranking staff.
For instance, some family-run businesses may practice cronyism and promote their friends and family to high positions.
Nepotism is still well and alive in today’s corporate world, and you should assess if jobs are being filled by people of relevant qualifications or have been appointed purely because of family ties.
If left unchecked, cronyism will cause companies to fracture internally as the delivery of poor performance stunts the growth of the business.
Problems will be swept under the carpet rather than tackled head-on, thus creating a vicious cycle that sinks the organisation.
You should also check the company’s annual report to ensure executive compensation is in line with industry standards (i.e. competitors) and is not excessive.
Go through the last five years’ worth of remuneration to determine if there is any justification for it increasing (e.g. does the company enjoy steadily rising net profits that justify a higher bonus for executives?).
9. Does the company have depth in its management?
The above relates to the presence of different types of skill sets within the management team.
A company should ideally possess a diverse set of skills from people so that they can work together to advance shareholder interests.
“Depth” in this case refers to a wide range of capabilities, experience, knowledge or competencies that a great management team should have.
If a company lacks certain skills, it may end up losing out to competitors who do possess them.
Part four shall continue with the next three points within his 15-point checklist.
Stay tuned!
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Disclaimer: Royston Yang does not own any of the companies mentioned.
