Common Stocks and Uncommon Profits by Philip Fisher

Last updated: Oct 5, 2023

Summary of Common Stocks and Uncommon Profits by Philip Fisher

Common Stocks and Uncommon Profits is a book written by Philip Fisher, a renowned investor and author. In this book, Fisher shares his investment philosophy and provides valuable insights into the world of stock investing.

Fisher emphasizes the importance of thoroughly researching and understanding a company before investing in its stock. He believes that investors should focus on long-term investments in companies with strong growth potential and exceptional management teams.

One of the key concepts discussed in the book is the "scuttlebutt" method, which involves gathering information about a company from various sources, such as customers, suppliers, and competitors. Fisher believes that this approach can provide valuable insights into a company's prospects and help investors make informed investment decisions.

Fisher also emphasizes the importance of investing in companies with a sustainable competitive advantage, or what he calls a "moat." He believes that companies with a strong moat are more likely to generate consistent profits and provide higher returns to investors over the long term.

Another important aspect discussed in the book is the management of a company. Fisher believes that a company's management team plays a crucial role in its success. He advises investors to carefully evaluate the management team's track record, integrity, and ability to adapt to changing market conditions before investing in a company.

Fisher also provides valuable insights into the different types of stocks and their characteristics. He discusses growth stocks, income stocks, and cyclical stocks, and provides guidance on how to identify and invest in each type effectively.

Furthermore, Fisher emphasizes the importance of diversification and risk management in a portfolio. He advises investors to spread their investments across different industries and companies to reduce the risk of losses. He also suggests that investors should be patient and have a long-term perspective when it comes to investing in stocks.

In conclusion, Common Stocks and Uncommon Profits is a comprehensive guide to stock investing, providing valuable insights into the principles and strategies that can help investors achieve long-term success in the stock market. Fisher's emphasis on thorough research, understanding a company's competitive advantage, and evaluating management teams makes this book a valuable resource for both novice and experienced investors.

1. Long-term investing mindset

One of the key takeaways from Common Stocks and Uncommon Profits is the importance of adopting a long-term investing mindset. Fisher emphasizes the need to focus on the long-term prospects of a company rather than short-term market fluctuations. He advises investors to thoroughly research and understand the fundamentals of a company before investing, looking for companies with strong growth potential and competitive advantages.

This long-term approach allows investors to ride out short-term market volatility and benefit from the compounding effect of long-term growth. Fisher suggests that investors should be patient and hold onto their investments as long as the company's fundamentals remain strong, even during periods of market downturns.

2. Scuttlebutt method

Fisher introduces the concept of the "scuttlebutt method," which involves gathering information about a company from various sources to gain insights into its potential. He encourages investors to talk to customers, suppliers, competitors, and employees to gather information that may not be readily available in financial statements.

By conducting thorough research and gathering information from multiple sources, investors can gain a deeper understanding of a company's operations, competitive position, and growth prospects. This approach allows investors to make more informed investment decisions and identify companies with strong long-term potential.

3. Importance of management

Fisher emphasizes the critical role of management in the success of a company. He suggests that investors should carefully evaluate the quality and competence of a company's management team before investing. Fisher believes that a strong management team with a clear vision and effective execution is essential for long-term success.

Investors should look for management teams that have a track record of making sound strategic decisions, allocating capital efficiently, and adapting to changing market conditions. Fisher suggests that investors should consider management as partners and evaluate their integrity, ability to innovate, and willingness to communicate with shareholders.

4. Competitive advantages

Fisher highlights the importance of investing in companies with sustainable competitive advantages. He suggests that investors should look for companies with unique products, strong brand recognition, patents, or other barriers to entry that protect them from competition.

Companies with competitive advantages are more likely to maintain their market share, generate consistent profits, and deliver long-term value to shareholders. Fisher advises investors to carefully evaluate a company's competitive position and assess the potential threats from competitors before making investment decisions.

5. Margin of safety

Fisher emphasizes the importance of investing with a margin of safety. He suggests that investors should only invest in companies that are trading at a significant discount to their intrinsic value. This provides a cushion against potential downside risks and increases the potential for long-term gains.

By investing with a margin of safety, investors can protect themselves from potential losses and increase their chances of achieving above-average returns. Fisher advises investors to be patient and wait for attractive buying opportunities rather than chasing overvalued stocks.

6. Focus on quality

Fisher advocates for investing in high-quality companies with strong fundamentals. He suggests that investors should focus on companies with consistent earnings growth, strong balance sheets, and a history of generating high returns on invested capital.

Investing in high-quality companies reduces the risk of permanent capital loss and increases the potential for long-term gains. Fisher advises investors to prioritize quality over quantity and be selective in their investment choices.

7. Continuous learning and adaptability

Fisher emphasizes the importance of continuous learning and adaptability in the investment process. He suggests that investors should constantly update their knowledge, stay informed about industry trends, and adapt their investment strategies accordingly.

The investment landscape is constantly evolving, and investors need to stay ahead of the curve to identify new opportunities and avoid potential pitfalls. Fisher encourages investors to be open-minded, willing to learn from their mistakes, and adapt their investment approach based on new information.

8. Patience and discipline

Fisher stresses the importance of patience and discipline in successful investing. He advises investors to avoid impulsive decisions based on short-term market fluctuations and stick to their long-term investment strategies.

Successful investing requires discipline to stay focused on the long-term goals and avoid emotional reactions to market volatility. Fisher suggests that investors should have the patience to hold onto their investments as long as the company's fundamentals remain strong, even during periods of market downturns.