This book is one of the most important books to learn about investing. The most famous investor of all-time, Warren Buffet, has repeatedly stated that Common Stocks & Uncommon Profits is one of the best books he has ever read in his lifetime. In this article, we try to summarize a few keys takeaways for you to apply to your investments.
15 Points
The most important lesson from the book centers around the 15 points which the author, Philip A. Fischer, outlines as a checklist to look for in common stock of a company that is worthy of an investment. If a stock satisfies all or most of these 15 points, then the company would be considered to be a good investment. The 15 points focus on the company’s profitability, research and development, increasing margins, and the competency of the company’s management team.
As stated earlier the company does not have to satisfy all 15 questions to be a good investment but it should satisfy a great majority.
The 15 Points are as follows:
Does the company have products or services with sufficient market potential to make possible a sizeable 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 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 a 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 the 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?
Scuttlebutt
Scuttlebutt is a term used for the gathering of information on the company using other means than the information a company publishes. Scuttlebutt involves talking to employees, customers, competitors, etc. on the company and how they perceive the company. The author argues that this will give the investors a clearer view of the company rather than the financials alone. Scuttlebutt provides deeper insights into a company that cant often be had through reading.
“It is amazing what an accurate picture of the relative points of strengths and weakness of each company in an industry can be obtained from a representative cross-section of the opinions of those who in one way or another are concerned with any particular company.”
- Philip A. Fisher
Long-Term Investing
Invest for the long-term. If you invest in high-quality companies with strong potential for growth your investment will continue to grow through all the ups and downs. There is no point in trying to time the market because no matter what people say, no one can time the market. Some people just get lucky.
However, he does give advice on selling and there should only be two reasons.
1. When the earnings have reached their peak;
2. Or if the management team has lost focus and mistakes have been made.
Diversification
Diversification in investing is an important topic as it reduces the risk of one investment failing and ruining your investment returns. However, the author makes a clear point that too much diversification will hurt you rather than help you. If you did your research properly and followed the 15 points and incorporating scuttlebutt having a handful of companies is enough.
A quote from Warren Buffet After Reading this book:
"I sought out Phil Fisher after reading his Common Stocks and Uncommon Profits...A thorough understanding of the business, obtained by using Phil's techniques...enables one to make intelligent investment commitments."
- Warren Buffet
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