Common Stocks and Uncommon Profits by Philip Fisher

Summary

Common Stocks and Uncommon Profits by Philip Fisher is a foundational work on growth investing. Fisher introduces the concept of investing in innovative, well-managed companies with strong long-term growth potential. The book offers detailed methodologies like the "scuttlebutt" approach for researching investments, emphasizing qualitative aspects often overlooked by traditional financial analysis. Fisher's principles influenced generations of investors, including Warren Buffett, and continue to shape investment strategies today.

Life-Changing Lessons

1. Thorough research and understanding of a company, beyond just financials, is key to successful investment decisions.

2. Investing should focus on outstanding companies with potential for long-term growth, not just undervalued stocks.

3. Seeking firsthand information from employees, customers, competitors, and suppliers ('scuttlebutt') is crucial to uncovering a company's true prospects.

Publishing year and rating

The book was published in: 1958

AI Rating (from 0 to 100): 92

Practical Examples

1. Scuttlebutt Method

   Fisher recommends gathering information about a company by talking to competitors, suppliers, customers, and employees. For example, before investing in a technology company, you’d speak with vendors about their relationship with the firm, customers about product satisfaction, and even former employees about management quality. This holistic view uncovers insights not found in annual reports or financial statements.

2. Fifteen Points to Look for in a Common Stock

   Fisher provides a checklist of fifteen qualitative factors investors should examine, such as management integrity, research and development quality, and sales potential. As an example, an investor looking at a pharmaceutical company would evaluate their R&D pipeline, the innovativeness of their management, and their growth in sales channels, rather than just the profit margins.

3. Only Buy What You Understand

   Fisher insists investors should only buy companies whose business they understand. For instance, before buying stock in a medical device company, you should learn about the industry, its regulations, and the underlying technology, to avoid blind speculation and improve decision-making.

4. Long-Term Holding Strategy

   Fisher promotes holding onto excellent stocks for extended periods rather than quick trading. He illustrates that investors often sell winners too soon, missing out on future appreciation. By holding shares in a company with strong growth potential, like a young technology firm, you maximize compounding benefits.

5. Evaluating Management’s Candor and Integrity

   Fisher advises investors to assess whether management is open about problems and realistic about competition. For example, if you notice that a company’s leadership addresses setbacks honestly in communications and takes responsible actions, this bodes well compared to firms that avoid transparency.

6. Product and Service Leadership

   Fisher highlights the importance of investing in companies that are leaders in their fields. For example, he would advocate buying shares in a consumer electronics company that consistently introduces market-leading products, demonstrating sustainable competitive advantages.

7. Profit Margins as an Indicator

   He advises looking for companies with profit margins that are above the industry average, signaling superior business models or execution. For example, a retailer with consistently higher margins than peers might have better cost controls or a unique value proposition.

8. Continuous Improvement

   Fisher notes that outstanding companies constantly improve their operations and adapt to changes. For example, a manufacturing business that reinvests in automation and staff training can maintain a competitive edge and sustain growth.