The Practical Way

Thursday, 15th September 2011

“Common Stocks and Uncommon Profits” by Philip A. Fisher

Written by George Traganidas Topics: Books, Stock Investing, Wealth Building

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Philip Fisher was in investor for many years and he was a very successful one. In his book “Common Stocks and Uncommon Profits” he outlines some of his ideas that have helped him to be a successful investor.

He regularly used to go out on the field and speak with employees of the companies, with suppliers, competitors and the management and was able to gather valuable information from them. Of course, he did a lot of preparation work before he went to the meetings to show to people that he was a serious investor.

Here are 15 points that he was looking for in companies that he wanted to invest in. Many of them are more difficult to quantify than a simple P/E ratio, but none the less very important.

1. Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?

2. Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of current attractive product lines have largely been exploited?

3. How effective are the company’s research and development efforts in relation to its size?

4. Does the company have an above-average sales organisation?

5. Does the company have a worthwhile profit margin?

6. What is the company doing to maintain or improve profit margins?

7. Does the company have outstanding labor and personnel relations?

8. Does the company have outstanding executive relations?

9. Does the company have depth to it management?

10. How good are the company’s cost analysis and accounting controls?

11. Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?

12. Does the company have short-range or long-range outlook in regard to profits?

13. In the foreseeable future will the growth of the company require sufficient equity financing that the larger number of shares then outstanding will largely cancel the existing stockholders’ benefit from this anticipated growth?

14. Does the management talk freely to investors about its affairs when things are going well but “clam up” when trouble and disappointments occur?

15. Does the company have a management of unquestionable integrity?

These 15 points will help you to come up with potential companies to buy. Then you had to decide on what to buy, when to buy it and when it is time to sell it.

Follow the practical way,
George

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