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What are we looking for?

Today we'll look at a model portfolio based on the investment style of Kenneth Fisher, bestselling author, money manager and billionaire. Mr. Fisher is the son of Philip Fisher, who was known as the “father of growth investing” and had a major influence on Warren Buffett.

The Fisher method

In the mid-1980s, Mr. Fisher's book, Super Stocks , advocated using the price-to-sales ratio to find promising stocks. Because earnings are subject to volatility from one-time items, he focused on sales as a more reliable measure of a company's strength.

Mr. Fisher used different standards for different industries, but generally, the lower the price-to-sales ratio (PSR), the more attractive a stock is. He also looked for companies with strong earnings growth, low debt and high profit margins.

With technology and medical companies, another measure he used was the price-to-research ratio – the company's market capitalization divided by the company's spending on research and development.

Today's screen

We'll use a proprietary screening tool at Validea.com, a website that allows users to generate model portfolios based on the ideas of gurus such as Mr. Fisher.

“Fisher has changed his strategy today, but his PSR-focused approach has continued to produce strong results for us,” Validea.com says.

In fact, Validea.com's 10-stock model portfolio based on Mr. Fisher's method, and rebalanced quarterly, has returned an annualized 15.4 per cent since inception in 2003, beating all other 10-stock guru portfolios tracked by Validea.com. The 20-stock Fisher model portfolio has returned 10.7 per cent, good for fifth place in that category.

The results

The table presents the current 20-stock Fisher model portfolio, along with the date each company was added and the return since then. The “score when added” and “current score” columns take into account the number of tests the stock passed based on the guru's strategy. A 100-per-cent score means the stock met all of the guru's criteria; a lower score means the stock did not meet certain criteria.

As you can see, all 20 stocks achieved 100-per-cent ratings when they were added, but many have fallen since. When the next quarterly rebalancing takes place, some of these stocks may drop off the list.

All but three of the 20 stocks have risen in price since they joined the portfolio. While that's impressive, it's important to note that many were added earlier this year and have benefited from an exceptionally buoyant stock market.