“Common Stocks and Uncommon Profits” is a book written by Philip A. Fisher, a renowned investor and one of the pioneers of modern value investing. The book was first published in 1958 and has since become a classic in the field of investment literature. It is highly regarded for its insights into stock investing and its emphasis on long-term, fundamental analysis.
The book is divided into three parts:
Conservative Investors Sleep Well: This section discusses Fisher’s investment philosophy, which revolves around thorough research, patience, and a focus on high-quality companies. He emphasizes the importance of understanding a company’s management, competitive advantages, and growth potential before investing.
Developing a Philosophy of Common Stock Investment: Fisher introduces his “Fifteen Points to Look for in a Common Stock,” a set of criteria that investors can use to evaluate potential investments. These points cover aspects such as management quality, product line, research and development, and financial soundness.
A Comparison of Four Different Approaches: Fisher contrasts his approach to investing with three other methods: those of John Burr Williams, Benjamin Graham, and T. Rowe Price. He explains the strengths and weaknesses of each approach while highlighting his own strategies.
The book’s central theme is the idea that successful investing involves more than just looking at financial statements and numbers. Fisher stresses the importance of understanding the qualitative aspects of a company, such as its competitive position, research and development efforts, and the integrity of its management. He also discusses his belief in holding stocks for the long term, allowing the value of well-chosen companies to compound over time.
“Common Stocks and Uncommon Profits” has been influential in shaping the way investors approach stock analysis and has inspired many professional investors. Fisher’s emphasis on fundamental analysis and the need for a deep understanding of a company’s operations remains relevant to this day.
Lessons from “Common Stocks and Uncommon Profits”
Here are some additional key points and insights from “Common Stocks and Uncommon Profits”:
Scuttlebutt Method: Fisher introduced the “scuttlebutt method,” which involves conducting extensive research and gathering information about a company from various sources, including competitors, suppliers, customers, and employees. This approach aims to gain a comprehensive understanding of a company’s prospects beyond what is publicly available.
Long-Term Perspective: Fisher believed in holding stocks for the long term and advocated for a patient approach to investing. He cautioned against trying to time the market or making frequent trades based on short-term fluctuations.
Management Quality: Fisher emphasized the importance of evaluating a company’s management team. He believed that a capable and ethical management team was crucial for a company’s success and growth potential.
Innovation and Research: Fisher placed significant importance on a company’s commitment to research and development. He believed that companies that consistently innovate and adapt to changing market conditions had a better chance of long-term success.
Growth Investing: While Fisher was a value investor, he was also known for pioneering growth investing. He was willing to pay a premium for companies with strong growth prospects, believing that their potential for future earnings growth justified a higher valuation.
Diversification: Fisher was not a proponent of excessive diversification. Instead, he believed that investors should focus on a small number of high-quality companies that met his stringent criteria. He believed that thorough research could reduce the need for extensive diversification.
Cautions and Risks: Fisher warned against blindly following popular investment trends and emphasized the importance of independent thinking. He also acknowledged that not all investments would be successful and that investors should be prepared for occasional mistakes.
Behavioral Factors: Fisher recognized the impact of human psychology on investment decisions. He advised investors to remain rational and patient, even in the face of market fluctuations and short-term volatility.
“Common Stocks and Uncommon Profits” remains relevant today for its emphasis on in-depth research, long-term investing, and the importance of understanding a company’s qualitative aspects. Fisher’s approach combines both value and growth investing principles, providing a holistic perspective on successful stock investing.
Who was Philip A Fisher?
Philip A. Fisher (1907–2004) was a prominent American stock investor and author renowned for his contributions to the field of value investing. His investment philosophy and insights have left a significant impact on the world of finance. Here’s a closer look at his life and legacy:
Born in 1907, Fisher began his investment career in the 1920s and gained valuable experience during the stock market crash of 1929. He established Fisher & Company, his investment counseling firm, in 1931. Through his firm, Fisher managed funds for various clients, including individual investors and institutions.
Fisher’s groundbreaking investment approach emphasized the importance of thoroughly researching companies before investing. His renowned “scuttlebutt method” involved gathering information from a wide range of sources, such as suppliers, customers, competitors, and industry experts, to gain insights beyond the available financial data.
In 1958, Fisher published his seminal book, “Common Stocks and Uncommon Profits.” This book presented his investment philosophy and introduced his “Fifteen Points to Look for in a Common Stock,” which outlined key criteria for evaluating stocks. Fisher advocated for understanding a company’s qualitative aspects, such as management quality, industry position, research efforts, and growth potential.
Fisher’s emphasis on long-term investing and his willingness to pay a premium for companies with strong growth potential led to his association with growth investing. His ideas influenced investors like Warren Buffett, who admired Fisher’s insights even while following a somewhat different value investing approach.
Beyond his investment principles, Fisher was known for his cautious and patient demeanor. He warned against blindly following market trends and encouraged independent thinking and rational decision-making.
Philip A. Fisher’s legacy endures through his writings and the lasting impact he had on investment philosophy. His focus on in-depth research, understanding a company’s qualitative strengths, and practicing patience remains relevant to investors seeking to make informed, successful investment decisions.