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Common Stocks and Uncommon Profits Summary: Philip Fisher’s Investment Principles in 5 Minutes

Growth Stock Investing - Philip Fisher Investment Strategy

Philip Fisher’s pioneering approach to growth stock investing and qualitative company analysis.

Table of Contents

Introduction

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.

Book Overview

‘Common Stocks and Uncommon Profits’ emerged from Fisher’s three decades of experience as a growth stock investor who achieved remarkable returns by focusing on innovative companies with exceptional long-term prospects. Fisher, who founded Fisher & Co. in 1931, developed his investment philosophy during an era when most investors focused on dividend income and asset values rather than growth potential.

The book is structured around Fisher’s famous ’15 Points to Look for in a Common Stock’—a comprehensive framework for evaluating companies based on their business prospects, management quality, and competitive position. Unlike contemporary approaches that emphasized quantitative analysis, Fisher advocated for deep, qualitative research to understand what made certain companies superior to their competitors. He argued that finding a few exceptional companies and holding them for decades would generate better returns than frequent trading or diversification into mediocre businesses. The book targets serious investors willing to conduct thorough research and take concentrated positions in companies they understand deeply.

Key Takeaways

  • The 15-Point Framework: Fisher developed a comprehensive checklist for evaluating growth companies covering sales growth, profit margins, research and development, and management quality.
  • Scuttlebutt Research: Gather information from customers, suppliers, competitors, and former employees to understand a company’s true competitive position and prospects.
  • Focus on Management Excellence: Superior management teams with integrity, vision, and execution ability are crucial for long-term success.
  • Buy and Hold for Decades: Fisher advocated holding exceptional companies for extremely long periods, sometimes entire careers, to maximize compound returns.
  • Concentrate on Your Best Ideas: Own fewer stocks but know them extremely well rather than diversifying into companies you don’t understand.
  • Growth at a Reasonable Price: Seek companies with excellent growth prospects trading at reasonable valuations, not the cheapest stocks available.
  • Conservative Investing Paradox: The most conservative approach is owning shares of exceptional companies, even if they appear expensive in the short term.

Core Concepts Explained

1. The 15 Points to Look for in a Common Stock

Fisher’s famous 15-point framework remains one of the most comprehensive qualitative analysis tools for evaluating growth companies:

  1. Sales Growth Potential: Does the company have products or services with sufficient market potential for substantial sales growth?
  2. Management Attitude toward Growth: Does management have the determination to continue developing new products or services for growth?
  3. Research and Development Effectiveness: How effective are the company’s research and development efforts relative to size?
  4. Sales Organization Strength: Does the company have an above-average sales organization?
  5. Profit Margins: Does the company have worthwhile profit margins?
  6. Margin Improvement: What is the company doing to maintain or improve profit margins?
  7. Labor Relations: Does the company have outstanding labor and personnel relations?
  8. Executive Relations: Does the company have outstanding executive relations?
  9. Management Depth: How good is the company’s management in depth?
  10. Cost Analysis: How good are the company’s cost analysis and accounting controls?
  11. Industry Leadership: Are there other aspects of the business that give the investor important clues as to how outstanding it is relative to competitors?
  12. Long-term Profit Outlook: Does the company have a short-range or long-range outlook in regard to profits?
  13. Dilution Risk: Will the growth require so much equity financing that shareholders’ interests will be significantly diluted?
  14. Management Communication: Does management talk freely to investors about its affairs when things are going well but ‘clam up’ when troubles arise?
  15. Management Integrity: Does the company have management of unquestionable integrity?

15 Point Investment Analysis Checklist

Fisher’s 15-point framework provides comprehensive qualitative analysis for evaluating growth companies.

2. The Scuttlebutt Method of Research

Fisher revolutionized investment research by introducing ‘scuttlebutt’—gathering information from industry sources rather than relying solely on company-provided data. This approach involves interviewing customers, suppliers, competitors, former employees, trade associations, and industry experts to understand a company’s true competitive position and prospects.

Key scuttlebutt sources include:

  • Customers: Are they satisfied with products/services? Are they increasing or decreasing purchases?
  • Suppliers: How does the company treat vendors? Are they prompt with payments? Do they collaborate on innovation?
  • Competitors: How do they view the company’s strengths and weaknesses? What are they worried about?
  • Former Employees: Why did they leave? What was the culture like? How effective was management?
  • Industry Experts: What trends are affecting the industry? Which companies are best positioned?

This approach provides insights that financial statements can’t reveal, such as customer loyalty, employee morale, competitive threats, and management effectiveness. Fisher argued that spending time on scuttlebutt research could uncover investment opportunities and avoid disasters that purely quantitative analysis might miss.

3. The Philosophy of Long-term Holding

Fisher advocated for extremely long holding periods—often decades—for exceptional companies. His most famous investment, Motorola, was held for over 20 years and generated extraordinary returns. This approach requires incredible patience and conviction but allows investors to benefit fully from compound growth in exceptional businesses.

The benefits of long-term holding include:

  • Compound Returns: Exceptional companies can compound wealth at remarkable rates over decades
  • Tax Efficiency: Long-term capital gains receive preferential tax treatment
  • Reduced Transaction Costs: Minimal trading reduces fees and commissions
  • Management Partnership: Long-term shareholders become true partners with exceptional management teams
  • Market Volatility Irrelevance: Short-term price fluctuations become noise rather than signals

Fisher’s approach requires identifying companies with sustainable competitive advantages and exceptional management teams capable of navigating decades of change while maintaining growth and profitability.

4. When to Sell

Despite advocating for long-term holding, Fisher outlined three specific circumstances when selling is appropriate:

  1. Mistake Recognition: When you realize you made an error in your original analysis and the company doesn’t meet your quality standards
  2. Fundamental Deterioration: When the company’s competitive position, management quality, or growth prospects have permanently deteriorated
  3. Better Opportunity: When you find a significantly more attractive investment opportunity (this should be rare)

Fisher strongly opposed selling for market timing, profit-taking, or minor temporary setbacks. He believed that exceptional companies would overcome short-term challenges and continue growing over decades, making patience more profitable than trading activity.

Critical Analysis

‘Common Stocks and Uncommon Profits’ has profoundly influenced modern growth investing and remains relevant despite being written over 60 years ago. Fisher’s qualitative approach to company analysis provided insights that purely quantitative methods missed, and his emphasis on management quality and competitive advantages preceded similar concepts in modern strategy literature. Many of his principles influenced Warren Buffett’s investment philosophy, particularly the focus on business quality and long-term holding periods.

However, critics argue that Fisher’s approach requires significant time, expertise, and industry knowledge that most individual investors lack. Conducting effective scuttlebutt research demands industry connections and analytical skills that are difficult to develop. Additionally, his concentrated portfolio approach increases risk compared to diversified strategies, particularly if investors make errors in company selection or evaluation.

Some also argue that modern markets are more efficient and information travels faster, potentially reducing the effectiveness of scuttlebutt research. Regulatory requirements now mandate more disclosure, and professional analysts provide extensive coverage of most public companies. Despite these challenges, Fisher’s core principles about identifying exceptional companies and holding them long-term remain valuable for patient, knowledgeable investors.

Practical Application

To implement Fisher’s growth investing approach:

  1. Study the 15 Points: Use Fisher’s framework to systematically evaluate potential investments, focusing on qualitative factors like management quality and competitive position.
  2. Conduct Scuttlebutt Research: Interview customers, read industry publications, attend trade shows, and talk to industry experts to gain insights beyond financial statements.
  3. Focus on Management: Evaluate leadership teams through conference calls, annual meetings, and industry reputation. Look for integrity, competence, and long-term thinking.
  4. Seek Sustainable Advantages: Identify companies with durable competitive moats—proprietary technology, brand strength, network effects, or regulatory advantages.
  5. Build Concentrated Positions: Own fewer stocks but understand them deeply. Fisher preferred 10-12 stocks for most investors.
  6. Plan for Long-term Holding: Only buy companies you’d be comfortable owning for 10+ years. Develop the patience to ride out short-term volatility.
  7. Monitor Continuously: Stay informed about your holdings through ongoing scuttlebutt research and company developments.
  8. Sell Decisively: When fundamental problems arise or better opportunities emerge, act quickly and completely.

Remember that this approach requires significant time investment and analytical skills—consider starting with companies in industries you understand well.

Conclusion

‘Common Stocks and Uncommon Profits’ established the foundation for modern growth investing by demonstrating how qualitative research and long-term thinking can generate extraordinary returns. Fisher’s emphasis on management quality, competitive advantages, and patient capital allocation influenced generations of successful investors and remains relevant in today’s markets. His scuttlebutt method showed that understanding businesses deeply—beyond financial statements—provides crucial insights for investment success.

While Fisher’s approach demands significant time and expertise, the principles translate well to modern investing: focus on exceptional companies with sustainable advantages, outstanding management, and long-term growth prospects. For investors willing to commit to thorough research and patient holding periods, Fisher’s methodology offers a proven path to uncommon profits through common stocks. The book’s enduring influence stems from its focus on business fundamentals rather than market trends—principles that remain as relevant today as they were over half a century ago.

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