Common Stocks and Uncommon Profits by Philip Fisher
- Ruxandra
- Feb 13
- 3 min read
Updated: Feb 17
"Common Stocks and Uncommon Profits" by Philip Fisher, first published in 1958, is a seminal work in the field of investment literature. Fisher's insights have profoundly influenced investment strategies, particularly those of renowned investors like Warren Buffett. The book emphasizes the importance of qualitative analysis in selecting growth stocks and offers a framework for evaluating companies beyond traditional financial metrics.
Investment Philosophy
Fisher advocates for a long-term investment approach, focusing on companies with sustainable growth potential. He argues that investors should seek businesses with strong management, innovative products, and a commitment to research and development. This philosophy aligns with the idea that investing in high-quality companies can lead to substantial returns over time.
The Fifteen Points of Common Stocks and Uncommon Profits
Central to Fisher's methodology is his "Fifteen Points to Look for in a Common Stock," a checklist designed to identify companies with exceptional growth prospects. These criteria encompass various aspects of a company's operations and management, including:
Potential for Sales Growth: The company should have the capacity for significant sales expansion over the long term.
Research and Development: A strong commitment to R&D indicates a focus on innovation and future product development.
Profit Margins: Consistently high profit margins suggest efficient operations and pricing power.
Management Quality: Competent and ethical management is crucial for sustaining growth and navigating challenges.
Financial Strength: A solid financial foundation enables a company to invest in growth opportunities and weather economic downturns.
Market Position: A leading position in its industry can provide a competitive advantage and pricing power.
Employee Relations: Positive labor relations contribute to productivity and company culture.
Cost Analysis and Accounting Controls: Effective cost management and robust accounting practices ensure financial integrity.
Competitor Analysis: Understanding competitors helps in identifying a company's relative strengths and weaknesses.
Integrity and Transparency: Management's honesty and openness are vital for investor trust.
Dividend Policy: A consistent and reasonable dividend policy reflects financial health and shareholder value.
Capital Allocation: Prudent investment of retained earnings indicates effective use of shareholder capital.
Economic Moat: A sustainable competitive advantage protects the company from competitors.
Growth Consistency: Steady growth in sales and earnings over time demonstrates operational effectiveness.
Management's Long-Term Vision: A clear and realistic long-term strategy aligns with shareholder interests.
By systematically evaluating these factors, investors can identify companies with the potential for "uncommon profits."
Scuttlebutt Method
Fisher introduces the "scuttlebutt" method, which involves gathering information from various sources to gain a comprehensive understanding of a company. This approach includes:
Interviews: Speaking with employees, competitors, suppliers, and customers to obtain diverse perspectives.
Industry Analysis: Studying industry trends and dynamics to assess a company's position within its sector.
Financial Review: Examining financial statements and reports to evaluate financial health and performance.
This thorough research process helps investors make informed decisions based on a holistic view of a company's operations and prospects.
Influence and Legacy
"Common Stocks and Uncommon Profits" has left a lasting impact on investment philosophy, particularly in the realm of growth investing. Warren Buffett, for example, has acknowledged Fisher's influence on his investment approach, highlighting the importance of qualitative analysis and long-term investment horizons.
The book's emphasis on understanding a company's management, products, and market position continues to be relevant for investors seeking to identify companies with sustainable competitive advantages.
If you found this article insightful and want to explore the full book, you can check it out here:
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