Hi investors! In this post, we are going to give you the book review of ‘Common stocks and uncommon profits by Philip Fisher. The book is an evergreen classic and was originally published in 1958.
The author of the book, Philip Fisher was a very successful investment legend of his time. He had a great influence on Warren Buffet, the billionaire investor and one of the richest people on this planet. Buffett himself has stated he is “85% Graham and 15% Fisher.”
*Graham was Warren Buffett’s mentor and also known as the father of value investing.
Also read: The Intelligent Investor by Benjamin Graham Summary & Book Review
Before we start the common stocks and uncommon profits book review, let us first give you a small introduction to Philip Fisher.
Phillip Fisher started his investment journey in 1928 after dropping out of Stanford Business School to take a job of a securities analyst. He started his own company ‘Fisher and company’ in 1931 and worked there till 1999 at an age of 91.
Philip Fisher was interested in growth stocks. His philosophy was to invest in well managed high-quality growth stocks for the long term.
Apart from ‘common stocks and uncommon profits, the other famous writings of Philip Fisher are:
Now, that you have got little knowledge about the author Philip Fisher, let’s move to continue our book review.
Common stocks and uncommon profits book review
The book ‘Common stocks and uncommon profits’ was an instant hit when first published and Philip’s idea of growth stock investing became immensely popular.
In the book, Philip Fisher described ‘what to buy’ for high-quality stocks, where he called these stocks ‘Scuttlebutt’. Scuttlebutts are those common stocks that have gone through a detailed analysis like the study of its promoters, suppliers, customers, stakeholders, employees, competitors etc to find out about the company’s future prospects.
The most important chapter of the book is ‘What to buy’ where Philip Fisher described his famous ’15 points to look for a common stock’.
In this chapter, Philip Fisher describes the different factors to check for a common stock like the validity of products/services for long life, management efficiency to continue growth and increase sales, Research, and development centre of the company w.r.t. its size, sales organization, profit margin, improving profit margin, labour & personnel relations, executive relations, cost analysis and accounting controls, competitors, and transparency & integrity of the management.
Although Philip Fisher mentioned that it’s highly unlikely that a company will meet all the 15 points in his checklist. However, if the company fails to meet multiple of these points, then it definitely is a dangerous point for the investors. Here is Philip Fisher’s 15 points checklist to look into common stocks before investing.
- 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 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?
The next key chapter is ‘when to sell’ where Philip Fisher argues that the best time to sell a good stock is ‘never’ as long as the company behind the stock maintains its characteristics of a usually successful enterprise.
The other important chapters of the book are ‘When to buy’, ‘Hullabaloo about dividends’ (Philip Fisher suggests that the dividend consideration should be given the least, not the most, by those desiring to select outstanding shares), ‘Five don’ts for investors’, and ‘How I go about finding a growth stock’.
The book attempts to show what to buy, when to buy and when to sell for those who are desiring to get uncommon returns on their investments. To sum up, this is a good read to understand the fundamentals of growth investing. I will definitely recommend reading this book.
That’s all. I hope this post on ‘Common stocks and uncommon profits book review’ is useful to the readers. Further, comment below which is the best book on investing that you have ever read.
Kritesh (Tweet here) is the Founder & CEO of Trade Brains & FinGrad. He is an NSE Certified Equity Fundamental Analyst with +7 Years of Experience in Share Market Investing. Kritesh frequently writes about Share Market Investing and IPOs and publishes his personal insights on the market.
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What does it means the time to sell it is almost never
It basically means to invest for a long time and avoid selling as long as possible. If the company is good and keeps performing well, you can enjoy the benefits of becoming a loyal shareholder.
A remarkable and legendary investor. One of the few who emerges stronger after the Great Depression. Nice write up.