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Common Stocks and
Uncommon Profits
Phil Fisher's philosophy is apparent from his first comments: "This book is dedicated to all investors, large and small, who do NOT adhere to the philosophy: I have already made up my mind, don't confuse me with facts." Four decades ago, Fisher argued what was then an unusual case for stocks: Buy innovative, well-managed companies as long-term investments. His area of focus was in technology companies.

He outlines fifteen rules for selecting the rare exceptional company from a host of pretenders:

  1. Excellent market potential for its products
  2. Management commitment to the development of new products
  3. Superior research and development relative to the company's size
  4. Strong sales organization
  5. Acceptable profit margins
  6. Commitment to the maintenance or improvement of margins
  7. Excellent labor relations
  8. Excellent morale among managers
  9. Management depth
  10. Tight cost and accounting controls
  11. Competitive advantages in quality and/or cost
  12. Long-range approach to profits
  13. Ability to grow with minimal equity financing
  14. Respect for the shareholders
  15. Management integrity

When you have found such a rare company, Fisher recommends that you ignore economic or market forecasts in determining a buy point for the stock. Look instead for an opportune time in the company's new product cycle, most prominently when profits are hurt due to expansion costs. The likely delays in getting the new product into production and the costs of promoting it may cause disappointment among investors. That, Fisher asserts, is the time to buy.

And when to sell? Not because of economic or market reasons, he advises. Not even when the stock seems overpriced on current results — as long as it's still attractive relative to future expectations. And certainly not just because the stock has risen.

If you've found the right company and have bought it wisely, Fisher argues, you need not sell at all. Your profit potential should be measured in thousands of percent, and the temporary fluctuations of the economy, the market and the stock itself should be just so much distracting background noise.

As an investor, Fisher has relied on a network of industry sources providing him with information and insights on current and prospective investments. Unfortunately, access to such scuttlebutt is only a distant dream for the average investor.

Fisher also offers some observations on diversification (focus on a few great ideas rather than a bunch of above-average ones), dividends (managements should be consistent in their payouts, and those payouts should depend on the opportunities for reinvestment of earnings), the focus on numbers (don't be obsessed with meaningless statistics) and crowds (avoid them).

Suggestion: Go to One Up on Wall Street