Introduction

Common Stocks and Uncommon Profits and Other Writings contains the wisdom of a legendary investor. It is one of the recommended books from an investment website. I am hoping to gain some knowledge from this book to boost my investment returns.

Author

Philip Arthur Fisher was a legendary Amrican investor. He founded his own money management company, Fisher & Co., in 1931 and was involved in its management till his retirement in 1999 at the age of 91. He passed away in 2004.

Contents

Common Stocks and Uncommon Profits and Other Writings are divided into 3 parts. Besides that, it has a preface, an introduction, and an appendix.

Part 1 is Common Stocks and Uncommon Profits. It contains a preface and 11 chapters. The chapters are Clues from the Past, What “Scuttlebutt” Can Do, What to Buy: The Fifteen Points to Look for in a Common Stock, What to Buy: Applying This to Your Own Needs, When to Buy, When to Sell: And When Not to, The Hullabaloo about Dividends, Five Don’ts for Investors, Five More Don’ts for Investors, How I Go about Finding a Growth Stock, and Summary and Conclusion.

Part 2 is Conservative Investors Sleep Well. It contains an epigraph, an introduction, and 6 chapters. These chapters are The First Dimension of a Conservative Investment, The Second Dimension, The Third Dimension, The Fourth Dimension, More about the Fourth Dimension, and Still More about the Fourth Dimension.

Part 3 is Developing an Investment Philosophy and consists of 4 chapters and a conclusion. The chapters are Origins of a Philosophy, Learning from Experience, The Philosophy Matures, and Is the Market Efficient?.

The appendix is Key Factors in Evaluating Promising Firms. There are 3 factors which are Functional Factors, People Factors, and Business Characteristics.

Review

Common Stocks and Uncommon Profits and Other Writings focuses on a growth-oriented investment style. According to the author, the best way to invest is to get greatest total profit for the least risk.

To achieve that, the author uses a method known as scuttlebutt. It is basically asking around about a company to find out the fundamentals of the company. There is a total of 15 points. I will give 3 examples here.

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 year?

Point 7: Does the company have outstanding labor and personnel relations?

Point 15: Does the company have a management of unquestionable integrity?

3 main determinants of success of a company are outstanding production, sales and research (constant leadership in engineering, not patents, is the fundamental source of protection). Ideal characteristics of management include a determination to attain further important growth and an ability to bring its plans to completion. A good management team should effect change and improvement from innovative thinking to make a workable system better, not from a forced reaction to a crisis.

Profit margin is important for a company. But the author tells us this: It is not the profit margins of the past but those of the future that are basically important to the investor.

According to the author, there are 5 powerful forces on general level of stock prices. They are the current phase of the business cycle, the trend of interest rates, the overall governmental attitude toward investment and private enterprise, the long-range trend to more and more inflation, and new inventions and techniques as they affect old industries. However, we may tell what will happen to the price of a stock but hardly how much time will elapse before it happens.

Furthermore, the price of a of a stock is determined by the current financial community appraisal of the particular company, of the industry it is in, and to some degree of the general level of stock prices. Every significant price move of any individual common stock in relation to stocks as a whole occurs because of a changed appraisal of that stock by the financial community. To value a stock as cheap or high is not its current price to some former prices but whether its fundamentals are significantly more or less favourable than the current financial community appraisal.

The author thinks diversification is important but he advises us to take extreme care to own not the most, but the best. He also acknowledges luck’s role in investment success.

Some observations in the book may not be true nowadays such as diminishing wealth gap. Besides that, some stocks quoted as examples do not exist anymore. But the author gives sound financial advice and contains good management advice in this book.

The 3 parts are actually 3 different books by the author. I will suggest you to start reading in reverse order, meaning from Part 3 to Part 1, going from broad to specific. The appendix is a good summary of the scuttlebutt method. Warren Buffett calls Common Stock and Uncommon Profits a very very good book. Overall, I think this book warrants the praise of Warren Buffett and it gives me more ideas to refine my investment style.

To conclude, we should not buy a stock without adequate knowledge about the business.

Quotes

1. Doing what everybody else is doing at the moment, and therefore what you have a almost irresistible urge to do, is often the wrong thing to do at all.
2. But making at least an occasional investment mistake is inevitable even for the most skilled investors.
3. Be undeterred by fears or hopes based on conjectures, or conclusions based on surmises.
4. It is my opinion that in almost every field nothing is worth doing unless it is worth doing right.
5. All the correct reasoning in the world is of no benefit in stock investment unless it is turned into specific action

Rating

Interested in Common Stocks and Uncommon Profits and Other Writings?

You may get the book from through the link below*.

Print from Kinokuniya Malaysia

Ebook from Rakuten Kobo

*Disclosure: The above link are affiliate links. Thus, I may earn a small commission when you purchase the book through the links.

Share on Facebook

Tweet