Common Stocks and Uncommon Profits by Philip A. Fisher

This week’s blog is a review of the classic investment book written for both the nonprofessional and professional investor, Common Stocks and Uncommon Profits by Philip A. Fisher (Investor Ken Fisher’s father). This classic financial / investment book was written in the 1950s. Common Stocks and Uncommon Profits had a great influence on Warren Buffet’s investment philosophy (as did the investment books penned by Benjamin Graham). This is a book that should not be read just once; it should be read over and over until you have a complete understanding of its content. It is the ‘bible’ of growth stock investing – sill utterly relevant 50 years after it was written.

Mr. Fisher’s strategy was simple; invest in a small portfolio of companies (around 15) which will continue to grow revenue and profit over the years. Using his investment methods if a company is correctly selected you may never have to sell the company and at the same time will make large gains over time (i.e. 5 to 10 times return on investment). He is the father of growth stock investing. Mr. Fisher was always looking for superlative companies that he could buy and hold for an extended period.

Mr. Fisher developed a list of 15 points to research before buying a stock to help him select superlative companies. This list is still valid 5 decades after he wrote it. Some of the points, however, do need to be modernized. Examples of the 15 points:

• Point 1: Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?

• Point 2: Does the management have a determination to continue to develop products or processes that will further increase total sales potential after the growth potentials of currently attractive products lines have largely been exploited?

• Point 4: Does the company have an above-average sales organization?

• Point 6: What is the company doing to maintain or improve profit margins?

• Point 14: Does the company have a management of unquestionable integrity?


Examples of the points would need to be adapted for the present time:

• Point 4: Does the company have an above-average sales organization? Today a large number of companies no longer have salespeople (if they do it is still valid point), I would expand the research to determine if the company has positive (high) brand recognition, customer satisfaction, page ranking of the company website, etc. There are many surveys on the best global brands in the world and customer satisfaction (for example the customer Net Promoter Score). You can you use Google’s page rank checker tool to check the page rank of a company’s website.

• Point 7: Does the company have outstanding labor and personnel relations? Mr. Fisher talks about developing good relations with a company’s labor unions. Most private companies in the US and around the world no longer have unions. I would review surveys of ‘best companies to work at’ (Fortune magazine does a very good survey every year of US companies). By googling ‘best companies to work at’ I quickly found surveys for Brazil, England, India and other countries.

Mr. Fisher also gives 10 more don’ts for investors. For example, don’t assume high price is an indication of future growth, don’t buy stocks because you like the tone of the annual report, don’t overstress diversification, don’t be afraid of buying during a war scare (or any scare), etc.

The scuttlebutt method is one Mr. Fisher used for researching companies. He did not rely on Wall Street research or newspaper or magazine stories for his research. If he was living today he would not be watching CNBC or Fox Business for his information, only for entertainment. With the scuttlebutt method you talk with people that can give you information about a company. For example, you talk with the companies that compete with the company that you are researching. You would find out what company they believe will be their most important competitor currently, in the future, etc. Another example: you would go talk with their customers to determine what the customer thinks about the company. You would go talk with the industry experts, suppliers, the company management, employees that left the company, people in the academic field, etc. Mr. Fisher did not spend much time looking at financial reports on any company in which he was interested.

If he were alive today, Mr. Fisher would be partial to companies that continue to develop new products which would contribute to the growth of sales revenue. He would break down revenue by the year the contributing product was introduced to the marketplace. This would show that the company had outstanding research and technical effort and they can work well with the marketing, production and sales organizations to develop products that customers want. Mr. Fisher also liked companies to have organic growth (growth within) and would limit how many companies he bought.

I would include Philip A. Fisher’s Common Stocks and Uncommon Profits in any financial library. It is the classic reference book on growth stock investing. If you own only two investing books buy Common Stocks and Uncommon Profits and Security Analysis: the 1936 or 1940 edition by Benjamin Graham and David Dodd. Security Analysis is the classic reference book on value investing.

Please chime in with comments about Common Stock and Uncommon Profits. Would you use Mr. Fisher’s 15 points for buying / selling stocks in today’s financial environment? In a future blog I will utilize Mr. Fisher’s 15 point method to evaluate 1 or 2 companies. Future blogs that I will be writing:

Income generating bucket of money

Investing in possible buyout companies

Investing in Brazil

Using Fisher’s 15 points researching companies to evaluate one company

Best investments for Qualitative Easing (QE) 2

© 2010 Paul Cusick