Book Review: Common Stocks and Uncommon Profits

18 Feb 2017 12:44
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Common Stocks and Uncommon Profits by Phillip Fisher is one of the legendary investing books that has been on my “To Read” list and I’ve finally gotten around to knocking it off.

Before I jump into my review I will start off by stating that this book is not about teaching or educating you in the use of valuation tools but is instead an overview of Fisher’s investment philosophy and how his philosophy developed over time. The latest edition is forwarded with commentary by his son Ken Fisher whose commentaries were respectful of his father but he tends to drone on too long about their family and relationship.

Overall the book is a fairly easy to read story and if you enjoy reading about historic investors and their investment philosophy for achieving that success you will enjoy the book. Personally I give it a B+ grade and thought it was a punch in the gut but validating at the same time. The book essentially starts off telling you that a main street investor does not have the access or tools to successfully invest in growth companies and should rely on an investment professional. My initial reaction to this was “oh great, another sales pitch for an investment firm” but the author does fair job of explaining why.

Fisher explains that a main street investor simply lacks the accessibility to corporate management to ask the right questions and get the answers to help with an investment decision. This is a method he refers to as “Scuttlebutt” where an investor has access to senior leaders (CEO, CFO, etc…) to ask pointed questions to evaluate items you cannot find in a company’s financial statements or annual report such as the quality of a company’s sales staff or how they treat employees. You may not agree with this but for me personally it answered why my past success in growth investing only yielded a mild return of 5.7%. This was my "punch to the gut" moment and I got the message even though I did not like what I read. It is a plain simple reality that a main street investor like myself has no inside access to look at a company beyond its financials.

The second part of the book discussed his philosophy on conservative investing which resonated a bit more with my value investment philosophy that I employ today. One of the elements he touches on that often goes overlooked is placing a company’s investment(s) in R&D, capital expenditures or even acquisitions as a fairly high weighting when evaluating a company. This is a concept I regularly employ when evaluating potential dividend growth by using tools like R&D investment trending or employing my CAPEX ratio and felt validation that I was properly employing these tools and having success.

The third and final section of the book describes how Fisher developed his initial philosophy and how it matured over time.
If you enjoy history then this final section will appeal to you.

Overall it wasn’t a bad read and some reviewers are pretty harsh stating the book is completely out of date and worthless. These comments are not entirely incorrect as the original book was written in 1958 and yes market conditions have changed since then that make some parts out of date. My answer to that is, “DUH”! In 1958 company stock buybacks were not as prevalent as they are today making earnings per share manipulation that much easier so his focus on earnings growth is a bit out of touch however like any growth number it is up to you the investor to interrogate the numbers and determine how valid is the growth and can it continue. I don’t care if its EPS or dividend growth, the same level of due diligence is required by any investor. Take this book for what it is (an investment philosophy) and don’t be so anal.

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