Common Stocks and Uncommon Profits
by Alex Ng
What if the secret to extraordinary investment returns lies not in complex financial formulas, but in finding exceptional companies and holding them for decades? Philip Fisher’s ‘Common Stocks and Uncommon Profits’ pioneered the growth investing approach that influenced legendary investors like Warren Buffett and Charlie Munger. Published in 1958, this groundbreaking book introduced the concept of ‘scuttlebutt’ research—gathering qualitative information about companies from customers, suppliers, competitors, and employees rather than relying solely on financial statements. Fisher’s philosophy focused on identifying companies with superior management, strong competitive advantages, and exceptional growth prospects, then holding them for the long term. This 5-minute summary explores Fisher’s time-tested principles for finding and evaluating growth stocks that can generate uncommon profits over decades.
The Big Idea
"The best investment returns come from finding outstanding companies with exceptional management and holding them for the long term—not from trading or market timing."
Key Insights
Scuttlebutt Method
The best investment research comes from talking to people with knowledge of the company: competitors, suppliers, customers, former employees, and industry experts.
Before investing in a tech company, talk to their customers about product quality, their suppliers about payment reliability, and competitors about their market position.
The Fifteen Points
Fisher developed 15 criteria for evaluating whether a company is worth investing in, covering sales growth, R&D, management quality, profit margins, and more.
Key questions include: Does the company have products with sufficient market potential? Does management have a determination to continue developing products? Is there outstanding management depth?
When to Sell (Almost Never)
If you've done your homework and bought an outstanding company, you should almost never sell. The three legitimate reasons: you made a mistake, the company no longer meets your criteria, or there's a much better opportunity.
Fisher held Motorola for decades through various market cycles. Selling because the price went up or because of general market fears is a mistake.
Focus on Growth, Not Value
The biggest profits come from companies that will grow significantly over the next decade, not from buying statistically cheap stocks. Pay a fair price for an outstanding company.
A company trading at 50x earnings that grows revenue 25% annually may be a better investment than one at 10x earnings with flat growth.
Management Quality Is Paramount
Outstanding companies have management that is honest, accessible, and has a genuine long-term vision. Avoid companies where management is promotional or doesn't acknowledge mistakes.
Look for CEOs who discuss problems openly in annual letters, invest their own money in the company, and treat employees and shareholders fairly.
Chapter Breakdown
Part 1: The Fifteen Points for Finding Great Stocks
Growth and Products
- Does the company have products with sufficient market potential to enable sizable sales growth for years?
- Does management have determination to continue developing products and processes that will increase sales potential?
- How effective is the company's research and development relative to its size?
Sales and Marketing
- Does the company have an above-average sales organization?
- Does the company have a worthwhile profit margin?
- What is the company doing to maintain or improve profit margins?
People and Management
- Does the company have outstanding labor and personnel relations?
- Does the company have outstanding executive relations?
- Does the company have depth to its management?
Financial Health
- How good are the company's cost analysis and accounting controls?
- Are there other aspects of business that give the company an unusual edge over competition?
- Does the company have a short-range or long-range outlook on profits?
Ownership and Integrity
- Will growth require equity financing that will dilute existing shareholders?
- Does management talk freely when things are going well but clam up when troubles occur?
- Does the company have management of unquestionable integrity?
Part 2: The Scuttlebutt Method
Fisher's unique contribution is his "scuttlebutt" approach—gathering intelligence by talking to everyone connected to a company before investing. This qualitative research often reveals more than any financial statement.
Part 3: When to Buy and Sell
When to Buy
Buy when a great company has a temporary setback, when the market doesn't appreciate its potential, or when it's developing a promising new product.
When to Sell
Only sell when: you made a mistake in your original assessment, the company no longer passes your criteria, or you find a much better opportunity and need to free up capital.
Part 4: Conservative Investing
True conservative investing isn't avoiding stocks—it's thoroughly understanding what you own. Fisher believed that concentrated positions in thoroughly researched, outstanding companies was actually less risky than diversification among mediocre ones.
Take Action
Practical steps you can implement today:
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Use the scuttlebutt method: research companies by talking to people who know them
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Apply Fisher's 15 points to evaluate potential investments
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Focus on companies with strong growth potential, not just cheap valuations
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Hold your winners—don't sell just because the price went up
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Pay close attention to management quality and integrity
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Be patient: great investments can take years to develop
Who Should Read This
Growth investors interested in finding exceptional companies. Anyone who wants to understand qualitative stock analysis. Long-term investors who prefer buy-and-hold strategies. Readers of Warren Buffett (who credits Fisher as a major influence).
Summary Written By
Software Engineer & Writer
Software engineer with a passion for distilling complex ideas into actionable insights. Writes about finance, investment, entrepreneurship, and technology.
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