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Common stocks and uncommon profits by Phillip Fisher

posted onApril 15, 2019

Written by Phillip Fisher, an investment legend to whom Warren Buffett attributes a lot of his success, Common stocks and uncommon profits was an instant hit when first published in 1958 and has remained in print ever since.

Fisher liked to invest in high-quality growth stocks and in the book he outlined the essence of his approach to growth investing: buy companies that are growing within growing industries.

The most important chapter of the book is What to buy where Fisher described his famous 15 points to look for a common stock. 

Here is Fisher’s 15 point checklist for investing in stocks

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?
2. 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?
3. How effective are the company’s research and development efforts in relation to its size?
4. Does the company have an above-average sales organization?
5. Does the company have a worthwhile profit margin?
6. What is the company doing to maintain or improve profit margins?
7. Does the company have outstanding labor and personnel relations?
8. Does the company have outstanding executive relations?
9. Does the company have depth to its management?
10. How good are the company’s cost analysis and accounting controls?
11. 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?
12. Does the company have a short-range or long-range outlook in regard to profits?
13. 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?
14. Does the management talk freely to investors about its affairs when things are going well but “clam up” when troubles and disappointments occur?
15. Does the company have a management of unquestionable integrity?

Fisher also gave a list of "Don'ts for investors"

1. Don't buy into promotional companies.
2. Don't ignore a good stock just because it is traded "over-the-counter."
3. Don't buy a stock just because you like the "tone" of its annual report.
4. Don't assume that the high price at which a stock may be selling in relation to its earnings is necessarily an indication that further growth in those earnings has largely been already discounted in the price.
5. Don't quibble over eighths and quarters.

The book is still required reading at the author’s alma mater, Stanford Graduate School of Business and is just as relevant today as it was back in the 1950s no matter whether you’re a conservative investor or a high-risk one. 

“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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