Super Stocks: A New Assessment Of Ken Fisher's Pioneering Book

This article is the fourth in a series about screens designed by famous investors. The first, on Benjamin Graham, can be found here; the second, on William O’Neil, can be found here; the third, on Joel Greenblatt, can be found here; and for an overview of the subject, see my article “Can Screening for Stocks Still Generate Alpha?

 Kenneth L. Fisher finished writing his very first book, Super Stocks, in September 1983, when he was 32 years old. Back then, it made sense to write,

First, get a personal computer. . . . It would help to have two disk drives. Then get a modem and communications software. . . . Through a normal push-button telephone line and modem, [personal] computers can access broad data-base services such as “The Source” by Reader’s Digest. . . .

Despite some dated stuff like this, it’s still a good read, full of good advice. And surprisingly, Fisher’s system still works, despite enormous changes in the market over the last 38 years. That’s more than I can say for most stock market writers.

What Is a “Super Stock”?

Fisher defines it right up front.

A Super Stock is defined to be both:

• A stock which increases 3 to 10 times in value in three to five years from its initial purchase.

• The stock of a Super Company bought at a price appropriate to an inferior company.

Fisher was a true pioneer here. He wasn’t kidding when he opened the book with the words “THIS BOOK OFFERS CONCEPTS NEVER BEFORE PRESENTED.” Those concepts were two value ratios: the price-to-sales and the price-to-research ratios. At the time he was writing, no other investors used these, and nor did academics. James O’Shaughnessy, author of What Works on Wall Street, named Fisher as the first person to define and use the price-to-sales ratio, and the price-to-research ratio is still on very few people’s radars. He was also one of the first people to identify small-cap value as a universe worth looking at. It’s one of the many reasons that Fisher became one of the richest Americans, a billionaire whose firm, Fisher Investments, now manages $160 billion.

Super Stocks is a guide for discretionary stockpickers. Unlike Benjamin Graham or Joel Greenblatt, Fisher did not lay out a very specific step-by-step strategy for picking stocks. There are only two hard-and-fast rules in the book: never buy a stock with a price-to-sales ratio greater than 3, and if you’re looking for Super Stocks, avoid any stocks with a price-to-research ratio greater than 15.

Fisher doesn’t give any rules for liquidity in his book. After all, in order to buy a stock back then, you had to call your broker, so stocks weren’t really that liquid to begin with, compared to today. So I’ll use some off-the-cuff rules here. If you stick with stocks with a market cap of $30 million, a price greater than $1, and an average daily dollar volume greater than $50,000, you still have between 150 and 250 stocks to choose from if you follow Fisher’s rules. How you choose them is the subject of most of the book.

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