Common Stocks And Uncommon Profits, The Wisdom of Phil Fisher

I'm re-reading Phil Fisher's classic, Common Stocks and Uncommon Profits. Most interesting to me is the fact that he considers an appraisal of the business, not exactly its stock metrics, as the most important latticework to find truly outstanding stocks.

I'm compiling a few of my favorite quotes here.

On knowing more about your investments than everyone else

It is my opinion that in almost any field nothing is worth doing unless it is worth doing right. When it comes to selecting growth stocks, the rewards for proper action are so huge and the penalty for poor judgement is so great that it is hard to see why anyone would want to select a growth stock on the basis of superficial knowledge.

On not being penny wise and pound foolish

If the stock seems the right one and the price seems reasonably attractive at current levels, buy "at the market." The extra eighth, or quarter, or half point that may be paid is insignificant compared to the profit that will be missed if the stock is not obtained. Should the stock not have this sort of long-range potential, I believe the investor should not have decided to buy it in the first place.

On investing in small, innovative and disruptive companies

At the other end of the scale, also of extreme interest for the right sort of long-run investment, are small and frequently young companies which may only have total sales of one to six or seven million dollars per annum, but which also have products that might bring a sensational future. To qualify under the fifteen points already described, such companies will usually have a combination of outstanding business management and equally capable scientific personnel who are pioneering in a new or economically promising field.

The young growth stock offers by far the greatest possibility of gain. Sometimes this can mount up to several thousand percent in a decade. But making at least an occasional investment mistake is inevitable even for the most skilled investor. It should never be forgotten that if such a mistake is made in this type of common stock, every dollar put into the investment can be lost. In contrast, if the stock is bought according to the rules described in the next chapter, any losses that might occur in the older and more established growth stocks should be temporary, resulting from a period of unanticipated decline in the stock market as a whole. The long-range gain in value of this class of big company growth stock will, over the years, be considerably less than that of the small and usually younger enterprise. Nevertheless, it will mount to thoroughly worthwhile totals. Even in the most conservative of the growth stocks it should run to at least several times the original investment.

On the preference for outstanding growth companies over statistically cheap stocks

Meanwhile, in the case of even the genuine bargain, the degree by which it is undervalued is usually somewhat limited. The time it takes to get adjusted to its true value is frequently considerable. So far as I have been able to observe, this means that over a time sufficient to give a fair comparison - say five years - the most skilled statistical bargain hunter ends of with a profit which is but a small part of the profit obtained by those using reasonable intelligence in appraising the business characteristics of outstanding growth companies. This, of course, is after charging the growth stock investor with losses on ventures which did not turn out as expected, and charging the bargain hunter for a proportionate amount of bargains that just didn't turn out.

The reason why growth stocks do so much better is that they seem to show gains in the value in the hundreds of percent each decade. In contrast, it is an unusual bargain that is as much as 50 percent undervalued. The cumulative effect of this simple arithmetic should be obvious.

Mike Arnold

full-time investor searching for talented operators, clean capital structures & scalable growth. no cigar butts or conventional wisdom. // hiker. hooper. writer

Portland, Oregon