Common Stocks and Uncommon Profits and Other Writings

What's Common Stocks and Uncommon Profits about?

• Investment Philosophy: The book outlines Philip A. Fisher's investment philosophy, focusing on long-term growth stocks rather than short-term trading. It emphasizes understanding a company's fundamentals and management quality.
• Fifteen Points: Fisher introduces "The Fifteen Points," a set of criteria to evaluate potential investments, helping investors identify companies with strong growth prospects and sound management.
• Scuttlebutt Method: The book advocates for the "scuttlebutt" method, which involves gathering information from various sources about a company to gain insights into its strengths and weaknesses.

Why should I read Common Stocks and Uncommon Profits?

• Timeless Strategies: Fisher's strategies remain relevant today, making the book a classic in investment literature. It provides a solid foundation for understanding growth investing.
• Influential Author: Philip A. Fisher is considered a pioneer in the field of investment, and his insights have influenced many successful investors, including Warren Buffett.
• Practical Guidance: The book offers practical advice on how to analyze companies and make informed investment decisions, which can benefit both novice and experienced investors.

What are the key takeaways of Common Stocks and Uncommon Profits?

• Focus on Growth: The primary takeaway is to invest in companies with strong growth potential rather than seeking quick profits. Fisher emphasizes the importance of long-term investment strategies.
• Management Quality: The quality of a company's management is crucial for its success. Fisher advises investors to assess management's integrity and ability to execute their vision.
• Research and Analysis: Conduct thorough research using the scuttlebutt method to gather insights from various sources. This approach helps investors make informed decisions based on real-world information.

What are the best quotes from Common Stocks and Uncommon Profits and what do they mean?

• Open-Mindedness: "This book is dedicated to all investors, large and small, who do NOT adhere to the philosophy: 'I have already made up my mind, don't confuse me with facts.'" This quote emphasizes the importance of being open-minded and willing to adapt one's investment strategy based on new information.
• Exceptional Companies: "The greatest investment reward comes to those who by good luck or good sense find the occasional company that over the years can grow in sales and profits far more than industry as a whole." Fisher highlights the value of identifying exceptional companies that outperform their peers.
• Comprehensive Evaluation: "The investor should never go into a situation with a poor score on any of the other fourteen points, merely because of great financial strength or cash position." This underscores the importance of evaluating a company based on multiple criteria.

What are the fifteen points to look for in a common stock according to Philip A. Fisher?

• Market Potential: Does the company have products or services with sufficient market potential for significant sales growth? This is crucial for long-term investment success.
• Management Determination: Is the management committed to developing new products or processes to sustain growth? A proactive management team is essential for ongoing success.
• Research Effectiveness: How effective are the company's research and development efforts? Strong R&D can lead to innovative products and sustained competitive advantage.

How does the scuttlebutt method work in Common Stocks and Uncommon Profits?

• Gathering Information: The scuttlebutt method involves collecting insights from various sources, including competitors, customers, and suppliers. This helps investors form a comprehensive view of a company's strengths and weaknesses.
• Building Trust: It's important to assure sources that their identities will remain confidential. This encourages open and honest communication, leading to more accurate information.
• Cross-Verification: Investors should cross-check information from multiple sources to ensure accuracy. This helps mitigate the risk of relying on biased or incomplete data.

What should I consider when evaluating a company's management according to Philip A. Fisher?

• Integrity and Trustworthiness: Does the management demonstrate unquestionable integrity? Trustworthy management is essential for long-term investment success.
• Ability to Execute: How effective is the management in executing their strategies? Strong leadership is crucial for navigating challenges and capitalizing on opportunities.
• Employee Relations: What is the company's relationship with its employees? Good labor relations often correlate with higher productivity and lower turnover, benefiting the company's bottom line.

When is the right time to buy stocks according to Common Stocks and Uncommon Profits?

• Identifying Opportunities: The best time to buy is when a company is about to experience a significant increase in earnings. This could be due to new product launches or operational improvements.
• Market Conditions: While timing the market is challenging, investors should be aware of broader economic conditions. However, focusing on individual company performance is more critical than macroeconomic predictions.
• Staggering Purchases: For new investors, it’s advisable to stagger purchases over time. This strategy helps mitigate the risk of investing all funds at a market peak.

What are the reasons to sell a stock in Common Stocks and Uncommon Profits?

• Mistakes in Purchase: If it becomes clear that a mistake was made in the original purchase, it’s time to sell. Quick recognition of errors can minimize losses.
• Deterioration of Company: If a company no longer meets the criteria outlined in the fifteen points, it may be time to sell. This could be due to management changes or market conditions.
• Better Opportunities: If a more attractive investment opportunity arises, consider selling the current holding. This allows for reinvestment in a company with better growth prospects.

How do dividends factor into investment decisions in Common Stocks and Uncommon Profits?

• Retained Earnings: Fisher argues that retained earnings can be more beneficial than dividends if used for growth. Companies that reinvest profits often provide greater long-term returns.
• Dividend Policy: A consistent dividend policy is important for investor confidence. Companies that change their dividend policies frequently may create uncertainty among shareholders.
• Long-Term Gains: Over time, growth stocks with lower dividends can outperform high-yield stocks. Investors should focus on the overall growth potential rather than immediate income from dividends.

How does Common Stocks and Uncommon Profits define a conservative investment?

• Low-Cost Production: A conservative investment is characterized by a company that is a low-cost producer in its industry. This allows the company to maintain profitability even during economic downturns.
• Strong Marketing Organization: The company must have a robust marketing strategy that effectively meets customer needs and adapts to changing market conditions.
• Outstanding Research and Financial Skills: A conservative investment also requires a company to have strong research capabilities and financial management.

What are the four dimensions of a conservative investment according to Philip A. Fisher?

• Production Efficiency: The first dimension focuses on a company's ability to produce goods at a lower cost than competitors. This efficiency is crucial for maintaining profit margins.
• Management Quality: The second dimension emphasizes the importance of having a competent and visionary management team.
• Inherent Business Characteristics: The third dimension looks at the unique characteristics of a business that allow it to maintain above-average profitability.
• Price-Earnings Ratio: The fourth dimension involves evaluating the price-earnings ratio to determine if a stock is undervalued or overvalued.