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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