The Ultimate Guide to Philip Fisher's Classic Book on Investing: Common Stocks and Uncommon Profits and Other Writings
Common Stocks and Uncommon Profits and Other Writings: A Classic Book on Investing by Philip Fisher
If you are looking for a book that can teach you how to invest in common stocks and achieve uncommon profits, you might want to read Common Stocks and Uncommon Profits and Other Writings by Philip Fisher. This book is widely regarded as one of the best books on investing ever written, and has influenced many successful investors, including Warren Buffett, who said he sought out Phil Fisher after reading his book.
Common Stocks and Uncommon Profits and Other Writings (Wiley Investment Classics) | updated
In this article, we will give you an overview of the book, its author, and its main ideas and insights. We will also tell you what are the updates and perspectives from Ken Fisher, the author's son, who wrote a preface, an introduction, and a commentary for each chapter in the updated edition of the book.
Who is Philip Fisher and why is he influential?
Philip Fisher was born in 1907 and died in 2004. He was an American investor, author, and founder of Fisher & Co., an investment advisory firm. He started investing in the stock market at the age of 15, and later graduated from Stanford University with a degree in economics. He worked as a securities analyst for a bank before starting his own firm in 1931.
Fisher was known for his long-term approach to investing, focusing on high-quality growth stocks that had strong competitive advantages, innovative products, and visionary management. He was also known for his meticulous research methods, using what he called "scuttlebutt" or word-of-mouth information to gather reliable facts about a company's performance and potential. He wrote several books on investing, but his most famous one is Common Stocks and Uncommon Profits, which was first published in 1958.
Fisher was influential because he introduced many novel concepts and principles that are still relevant and useful today. He also had a remarkable track record of success, earning an average annual return of over 20% for more than 50 years. He was admired and respected by many financiers and investors, including Warren Buffett, who said that he was "85% Graham (referring to Benjamin Graham) and 15% Fisher".
Fisher's investment philosophy and principles
The fifteen points to look for in a common stock
In the first chapter of the book, Fisher outlines his famous fifteen points that he used to evaluate a common stock. These are:
Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?
Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?
How effective are the company's research and development efforts in relation to its size?
Does the company have an above-average sales organization?
Does the company have a worthwhile profit margin?
What is the company doing to maintain or improve profit margins?
Does the company have outstanding labor and personnel relations?
Does the company have outstanding executive relations?
Does the company have depth to its management?
How good are the company's cost analysis and accounting controls?
Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?
Does the company have a short-range or long-range outlook in regard to profits?
In the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders' benefit from this anticipated growth?
Does management talk freely to investors about its affairs when things are going well but "clam up" when troubles and disappointments occur?
Does the company have a management of unquestionable integrity?
Fisher explains that these points are not meant to be rigid or mechanical, but rather flexible and adaptable. He also says that not every point has to be met by every company, but rather that the more points a company meets, the more likely it is to be a good investment.
The five don'ts for investors
In the second chapter of the book, Fisher warns investors about five common mistakes that they should avoid. These are:
Don't buy into promotional companies. These are companies that rely on hype and publicity rather than solid performance and growth.
Don't ignore a good stock just because it is traded "over-the-counter". These are stocks that are not listed on a major exchange, but rather traded through dealers or brokers. Fisher says that some of the best opportunities can be found in this market, as long as one does proper research and analysis.
Don't buy a stock just because you like the "tone" of its annual report. Fisher says that annual reports can be misleading or incomplete, and that one should look beyond them to get a true picture of a company's performance and potential.
Don't assume that the high price at which a stock may be selling in relation to earnings is necessarily an indication that further growth in those earnings has largely been already discounted in the price. Fisher says that some stocks may seem expensive based on their current earnings, but they may actually be cheap based on their future earnings potential.
Don't quibble over eighths and quarters. Fisher says that one should not be too concerned about getting the lowest possible price for a stock, but rather focus on getting a reasonable price for a high-quality stock.
The four dimensions of a conservative investment
In the third chapter of the book, Fisher describes his criteria for selecting conservative investments. He says that a conservative investment should have four dimensions:
A considerable assurance that over a period of years both its earnings and dividends will grow at least as fast as any likely increase in living costs.
A high probability that over these same years there will be no serious erosion in either its market price or its purchasing power.
A strong likelihood that over these same years there will be an increase in both its market price and its purchasing power.
A virtual certainty that over these same years there will be no need for any investor action either to protect his position or to take advantage of new opportunities.
Fisher says that these dimensions are not easy to find, but they are worth looking for. He also says that one should not confuse conservative investments with low-risk investments, as some low-risk investments may actually be very poor investments in terms of returns and growth.
What are the main ideas and insights from the book?
The concept of scuttlebutt
How to gather reliable information about a company
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