Philip Fisher’s Common Stocks and Uncommon Profits is a classic investment book that emphasizes a qualitative approach to analyzing companies. Fisher focuses on long-term growth investing, prioritizing deep research and understanding of a company’s potential. Below is a summary of the key concepts:
1. The Scuttlebutt Method
Fisher advocates for thorough research by gathering insights from various sources, such as:
- Employees, customers, competitors, and suppliers.
- Industry experts and company management. This method helps investors assess a company’s true strengths and weaknesses.
2. The 15 Points of a Good Investment
Fisher outlines 15 qualities that a company should have to be a sound long-term investment. These fall into the following categories:
Management
- Integrity of Management: The management team should have honesty and dedication.
- Innovative Leadership: A commitment to developing new products and staying ahead of competition.
- Good Personnel Practices: Attracting and retaining top talent.
- Excellent Investor Relations: Openness to investor concerns and questions.
Growth Potential
- Strong Market Position: Competitive advantage in its industry.
- Growth Opportunities: Room for expansion in existing and new markets.
- High Profit Margins: A track record of strong profitability.
- Research and Development: Commitment to R&D for long-term growth.
Operational Excellence
- Efficient Cost Control: Cost management without sacrificing quality.
- Adaptability to Change: Ability to thrive in a rapidly changing environment.
- Good Capital Allocation: Using profits wisely for expansion or shareholder returns.
Business Fundamentals
- Unique Competitive Advantage: Products or services that are difficult to replicate.
- Strong Sales Organization: Effective sales strategy and execution.
- Market Leadership: An established reputation as an industry leader.
- Focus on Long-Term Goals: Visionary planning beyond short-term earnings.
3. Buy and Hold Philosophy
Fisher stresses holding stocks for the long term, ideally forever, if the business continues to meet his criteria. Selling should occur only if:
- The company’s fundamentals deteriorate.
- A better investment opportunity arises.
4. The Importance of Qualitative Analysis
Unlike many value investors who focus on quantitative metrics (e.g., P/E ratios), Fisher believes qualitative factors, such as management quality, innovation, and customer satisfaction, are more critical to identifying long-term growth opportunities.
5. Patience and Conviction
Fisher emphasizes patience in investing, allowing the business to compound over time. He also advises against diversifying excessively, as it dilutes potential gains from the best-performing stocks.
6. Avoiding Mistakes
Fisher outlines common mistakes, such as:
- Overreacting to short-term market fluctuations.
- Focusing solely on low P/E ratios without understanding growth potential.
- Failing to research companies thoroughly.
For my investment check-list : click here
