Review Common Stocks Uncommon Profits, Phil Fisher

 Common Stocks Uncommon Profits

15 points to look for in a common stock

1.      does the company have products or services with sufficient market potential to make possible a sizeable increase in sales for at least several years?

Some are fortunate because they are able, and others are fortunate and able.

Not even great companies can grow sales every year.

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?

4.      Does the company have an above-average sales organisation?

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 labour 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 control 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 with its competitors?

12.   Does the company have a short-range or long-range outlook regarding profits?

13.   In the foreseeable future, will the company's growth require sufficient equity financing so that the larger number of outstanding shares will largely cancel the existing stockholder's 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?

What to buy—quality growth stocks, maybe early in the growth phase once established.

When to buy—don’t worry about macro, only be reluctant if share prices incorporate a lot. When a company has made worthwhile investments, but they are yet to hit the bottom line.

When to sell---1. A mistake has been made 2. It no longer looks attractive versus 15 points, 3. Growth is exhausted

FIVE DONTS FOR INVESTORS

1.      Don’t buy into promotional companies—pre-profit companies

2.      Don’t ignore stocks because they are over-the-counter

3.      don’t buy stocks because you like the tone of the annual report

4.      don’t assume that the high price at which a stock may be selling in relation to earnings indicates that further growth in those earnings has largely been already discounted in the price.

5.      Don’t quibble over cents when buying

 

FIVE MORE DONTS

1.      Don’t over-stress diversification—have quality proven growth stocks (most), younger quality growth stocks (less) and some speculative growth stocks (minimal)

2.      Don’t be afraid to buy on a war scare

3.      Don’t be influenced by what doesn’t matter

4.      Don’t fail to consider time as well as price in buying a true growth stock

5.      Don’t follow the crowd

How I go about finding a growth stock

Read the SEC prospectus if available, and use third-party info before talking to mgt. glance at financials

The filter--250 companies considered as possibilities for investment

40 companies looked at carefully

bought 2-3

CONSERVATIVE INVESTING

Superiority in production, marketing, research and financial skills

1. low cost production

2. strong marketing organisation

3. outstanding R&D effort

4. financial skills systems

People Factor

1.      Co must recognise that the world in which it is operating is changing at an ever-increasing rate

2.      All employees must feel that their company is a good place to work

3.      Mgt must be willing to submit itself to the disciplines required for sound growth—forgoing short term profits

Summary—what can the company do that others would not be able to do as well?

PRICE OF A CONSERVATIVE INVESTMENT

The investor's problem is always the same. Is the current prevailing market appraisal more favourable, less favourable, or about the same as that warranted by the basic economic facts?

 

THE TROUBLE WITH PHIL.

There is nothing wrong with the approach described here. In fact, it is a very sensible approach based on sound reasoning. The issue is trying to get clean data and a significant sample size. For example, interviewing one customer or supplier can result in a biased view. How many do you need for an unbiased sample? Secondly, sometimes the people more likely to proffer an opinion have an axe to grind so another issue with clean data. Over time views may change so continual follow-ups are required, and if they are with different people does that alter the soundness of the data? The upshot is that in reality, it is quite difficult to implement. The internet, however, does make this process a better chance of success. My opinion is that the process needs a consistent and perpetual take on views from many sources and over a long time to reduce the uncertainties of poor data input. That takes much persistence on the part of investors. Doing it right would deliver greatly.

 

 

 

 

 

 

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