Book: Common Stocks and Uncommon Profits

This briefing document outlines the core investment philosophy and key methodologies presented in Philip A. Fisher's "Common Stocks and Uncommon Profits." The excerpts highlight Fisher's emphasis on long-term growth investing, rigorous company research (dubbed "scuttlebutt"), a focus on qualitative factors alongside financial analysis, and a patient approach to holding high-quality stocks. The included introductory and concluding remarks by his son, Ken Fisher, provide valuable context and underscore the enduring relevance of the principles.

Main Themes and Important Ideas/Facts:

1. The Enduring Relevance of Fisher's Principles:

• The "Wiley Investment Classics" introduction positions the book as a timeless and vital resource for investors.
• Ken Fisher emphasizes that the book's core principles, particularly the "fifteen points" and "scuttlebutt," remain applicable across different investment styles (growth, value), market capitalizations, and even private businesses.
• He suggests rereading the book multiple times throughout an investor's career, comparing it to an "investing bible" whose usefulness deepens with each reading.

2. Focus on What to Buy for Long-Term Growth:

• The book's primary focus is on identifying and investing in companies with significant long-term growth potential.
• Ken Fisher notes that his father believed that if you buy the right things, selling becomes less critical, allowing for longer holding periods.
• The "fifteen points" are introduced as a "prescription for what to buy," describing firms with "huge product and market potential and a management determined to continue exploiting that potential."

3. The Power of "Scuttlebutt" - In-Depth Company Research:

• "Scuttlebutt" is presented as a crucial element of Fisher's investment approach, involving gathering information from various "Main Street" sources such as customers, competitors, and suppliers to understand a company's strengths and weaknesses.
• Ken Fisher stresses that the "craft is in the scuttlebutt," requiring time and learning to master. It goes beyond relying on rumors and Wall Street noise.
• He highlights the art of scuttlebutt as the ability to ask the right follow-up questions based on the answers received, leading to a deeper understanding of the business.
• Examples are given of Philip Fisher's meticulous preparation for company visits and his ability to ask insightful, unprepared questions.

4. Qualitative Factors and Management Assessment:

• The excerpts emphasize the importance of assessing management's quality, integrity, and long-term vision.
• Ken Fisher quotes Jim Collins' question, "What are you doing that your competitors aren't doing yet?" as embodying his father's focus on companies that drive the market and innovate.
• Point 14 of the fifteen points specifically addresses the importance of management integrity and a sense of trusteeship towards stockholders: "Regardless of how high the rating may be in all other matters, however, if there is a serious question of the lack of a strong management sense of trusteeship for stockholders, the investor should never seriously consider participating in such an enterprise."

5. Long-Term Perspective and Patience:

• Both Philip and Ken Fisher advocate for a long-term investment horizon.
• Ken Fisher recounts his father's approach to market downturns, emphasizing focusing on the fundamentals of owned companies and using volatility as an opportunity to upgrade portfolio quality rather than panicking.
• Philip Fisher introduced his "three-year rule," suggesting that investment results should be judged over a longer period, reducing the impact of short-term market fluctuations.

6. The "Fifteen Points" as a Framework for Stock Selection:

• While the detailed fifteen points are not fully enumerated in the excerpts, their general characteristics are described. They encompass:
• Product and market potential
• Management's determination and ability
• Research and development effectiveness
• Sales force strength
• Profit margins and efforts to maintain or improve them
• Competitive advantages
• Financial strength and the need for equity financing
• Management integrity

7. The Dangers of Market Timing and Short-Term Focus:

• Ken Fisher recounts his father's skepticism towards traditional market timing, emphasizing the difficulty and unreliability of predicting market movements.
• Philip Fisher criticizes relying solely on past price ranges to determine buying points, arguing that it diverts attention from fundamental value and future prospects. He states, "It is dangerous because it puts the emphasis on what does not particularly matter, and diverts attention from what does matter."
• He suggests that buying based on a specific future date tied to a company's development milestones might be a more effective strategy than waiting for a specific price, especially for high-growth companies with upcoming catalysts.

8. The Influence of the "Financial Community's" Appraisal:

• Philip Fisher discusses how the financial community's overall appraisal of the market, specific industries, and individual companies influences stock prices.
• He notes that these appraisals can be subject to fads and changing perceptions, even when the underlying facts remain the same.

9. Learning from Experience and Avoiding Arrogance:

• The preface highlights Philip Fisher's early experiences in the financial world, including witnessing the 1929 crash, which shaped his investment philosophy.
• Ken Fisher shares anecdotes illustrating his father's unique personality traits, including his seriousness, dry humor, and unconventional communication style. He emphasizes that even with deep knowledge, rereading the book provides continuous learning.

10. Diversification - Quality Over Quantity:

• Philip Fisher suggests that owning too many stocks can hinder an investor's ability to stay informed about their holdings.
• He advocates for owning "not the most, but the best," emphasizing concentrated investment in a few outstanding companies over broad diversification across numerous less compelling ones. He states, "In the field of common stocks, a little bit of a great many can never be more than a poor substitute for a few of the outstanding."

Quotes:

• Ken Fisher on the book's relevance: "Open a Wiley Investment Classic and rediscover the proven strategies, market philosophies, and definitive techniques that continue to stand the test of time."
• Ken Fisher on his father's buying focus: "Fortunately, this book teaches that if you figure out the right things to buy, selling becomes a lot less important because you can hold the stocks you own longer."
• Ken Fisher on the essence of the fifteen points: "My father's fifteen points are a prescription for what to buy. They describe a firm with huge product and market potential and a management determined to continue exploiting that potential far beyond the current product generation."
• Ken Fisher on the importance of scuttlebutt: "Scuttlebutt is simply about finding out from real, 'Main Street' sources if a firm is strong or weak. Most folks don't use this approach, relying instead on the local rumor mill and Wall Street noise, most of which is aimed at selling you product."
• Philip Fisher on management integrity: "Regardless of how high the rating may be in all other matters, however, if there is a serious question of the lack of a strong management sense of trusteeship for stockholders, the investor should never seriously consider participating in such an enterprise."
• Philip Fisher on the danger of focusing on past price ranges: "It is dangerous because it puts the emphasis on what does not particularly matter, and diverts attention from what does matter."
• Philip Fisher on concentrated investing: "In the field of common stocks, a little bit of a great many can never be more than a poor substitute for a few of the outstanding."

Conclusion:

The excerpts from "Common Stocks and Uncommon Profits" provide a valuable glimpse into Philip A. Fisher's enduring investment philosophy. His emphasis on thorough research, understanding qualitative factors, a long-term perspective, and concentrated investment in high-quality growth companies continues to resonate with investors seeking superior returns. Ken Fisher's insights further highlight the timeless nature and practical application of these principles in navigating the complexities of the modern investment landscape.

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