📖Philip Fisher

R&D Effectiveness

🌿 Intermediate★★★★☆

Continuous innovation is essential for maintaining competitive advantages. Companies that stop innovating eventually lose to competitors who don't. Look at R&D spending as a percentage of sales, patent filings, and new product pipeline. Sustainable growth requires continuous innovation. R&D is the engine of future products. Key insight: Companies without strong research and development programs eventually lose market position to more innovative competitors. Start with a minimal checklist: Have I talked to competitors?; Have I spoken with customers and suppliers?; Am I triangulating information?.

  • Have I talked to competitors?
  • Have I spoken with customers and suppliers?
  • Am I triangulating information?
  • Develop a network of industry sources

Avoid misuse: Confusing spending with results

💬

Does the company have an above-average research and development program that can continue to develop products that will sustain its growth?

— Common Stocks and Uncommon Profits, Point 2，1958

🏠 Everyday Analogy

Analyzing a business is like choosing a long-term partner. Temporary excitement matters less than durable character, capability, and consistency.

📖 Core Interpretation

Sustainable growth requires continuous innovation. R&D is the engine of future products.
💎 Key Insight：Companies without strong research and development programs eventually lose market position to more innovative competitors. Above-average R&D spending relative to revenue, coupled with a track record of successful product development, indicates a company is investing in its future rather than harvesting past successes. The best investments are in businesses that consistently develop new products or improve existing ones, creating barriers to entry and sustaining pricing power.

AI Deep Analysis

Get personalized insights and practical guidance through AI conversation

❓ Why It Matters

Companies that stop innovating eventually lose to competitors who don't.

🎯 How to Practice

Look at R&D spending as a percentage of sales, patent filings, and new product pipeline.

🎙️ Master's Voice

Go to five companies in an industry, ask each of them intelligent questions about the other four, and you will get an amazingly accurate picture of all five.
Fisher invented the scuttlebutt method—gathering information from multiple sources to triangulate the truth. This qualitative research gave him insights that financial analysis alone could not provide.

⚔️ Practical Guide

✅ Decision Checklist

  • Have I talked to competitors?
  • Have I spoken with customers and suppliers?
  • Am I triangulating information?

📋 Action Steps

  1. Develop a network of industry sources
  2. Ask the same questions to multiple parties
  3. Look for patterns and contradictions

🚨 Warning Signs

  • Relying only on company presentations
  • No primary research
  • Taking claims at face value

⚠️ Common Pitfalls

✕Confusing spending with results
✕Ignoring return on R&D investment

📚 Case Studies

1
Motorola Early R&D Bet (1955)
Fisher evaluated Motorola’s heavy R&D in semiconductors and communications, seeing a pipeline of products and strong technical leadership.
✨ Outcome：Invested and held long term; Motorola became a multibagger as R&D translated into dominant positions in radios and early electronics.
2
Texas Instruments Semiconductor Leadership (1960)
Fisher studied TI’s R&D intensity in transistors and integrated circuits, focusing on management’s ability to commercialize lab advances.
✨ Outcome：Maintained investment; TI’s technological edge drove strong revenue and profit growth, validating Fisher’s emphasis on sustained, productive R&D spending.

📌 Save this principle as your rule

One click to drop it into your personal rule library — every future trade will be scored against it.

See how masters handle real scenarios?

30 real investment dilemmas answered by legendary investors

Explore Scenarios →