Philip Fisher and his Investment Magnum Opus: Common Stocks and Uncommon Profits

Philip Fisher, one of the most influential investors of all time, wrote his investment classic, “Common Stocks and Uncommon Profits,” in 1958. The book encapsulates his investment philosophies and strategies, which have served as guiding principles for generations of growth investors.

Fisher was a proponent of the ‘buy and hold’ investment strategy, a strategy that advocates for long-term investments in well-researched stocks. One of his most famous quotes is, “If the job has been correctly done when a common stock is purchased, the time to sell it is – almost never.”

The Scuttlebutt Method

Fisher introduced the concept of “scuttlebutt,” which stands as a cornerstone of his investment approach. This method involves gathering as much relevant information as possible about a potential investment. He suggested that investors reach out to customers, suppliers, competitors, and even former employees to gain a thorough understanding of a company’s operations.

For instance, if you were considering investing in a tech firm, you might talk to its customers to find out what they think of the company’s products. You could also look at who the company’s major clients are and how dependent it is on them for revenue.

Focus on Quality

Fisher strongly believed in the importance of investing in high-quality companies. He preferred businesses that showcased strong management, promising growth prospects, and were leaders in their industries. A great example of such a company in today’s market might be Amazon, a tech giant known for its strong leadership under Jeff Bezos and its continual innovation and expansion into various markets.

Management Matters

In “Common Stocks and Uncommon Profits,” Fisher emphasizes the importance of quality management. He understood that even a company with a great product or service could fail under poor leadership. One of Fisher’s famous 15 points to look for in a common stock was related to the integrity of a company’s management. Fisher argued that management should be candid in reporting the company’s figures and operations to its shareholders.

Innovation is Key

Fisher was particularly interested in companies that prioritized research and development (R&D). He believed that the continual innovation these companies pursued could lead to significant growth over time. For example, a company like Apple, known for its dedication to innovation and R&D, would likely have attracted Fisher’s attention.

Patience and Long-Term Growth

Fisher was a strong advocate for holding stocks over a long period. He believed that the real benefits of investing in a quality stock would be realized over several years. This long-term approach stands in contrast to the short-term trading mindset where stocks are bought and sold frequently based on market trends.

Applying Philip Fisher’s Strategies in Today’s Market.

While it’s true that Philip Fisher passed away in 2004, the investing strategies he proposed during his lifetime continue to hold significant value. His investment philosophies, which emphasize thorough research, long-term investing, understanding of business operations, and focus on quality management, remain relevant and applicable to today’s rapidly evolving and increasingly complex financial markets. These strategies offer timeless insights, providing a guide for investors to navigate the investment landscape in a manner that’s not just profitable, but also sustainable over the long term.

1. Emphasize on the Long-Term Investment Strategy

Despite the allure of quick profits in a volatile market, Fisher’s philosophy would still advocate for long-term investments. In today’s world, this would mean investing in companies with strong growth prospects and holding onto these investments for years. The recent rise of “meme stocks” driven by retail investors would not align with Fisher’s approach, as it tends to focus on short-term price movements rather than long-term fundamentals.

2. Thorough Research and Scuttlebutt Approach

Fisher’s scuttlebutt method is perhaps more relevant now than ever. In today’s age of information, investors have access to vast amounts of data about companies. Investors can use resources on the internet to learn about a company’s business model, its competitive position, and the industries in which it operates. Conversations on social media platforms can provide insights into customer satisfaction, potential product issues, and more.

3. Focus on Management Quality

In line with Fisher’s principles, investors today should consider the quality of a company’s management team. Looking at how management handled crises like the COVID-19 pandemic could provide insights into their competence and resilience.

4. Innovation is Key

Fisher’s focus on innovation is particularly applicable to today’s market. Companies at the forefront of technologies such as AI, cloud computing, biotechnology, and renewable energy are likely to have the kind of growth potential that Fisher looked for in his investments.

5. Understanding the Business

Lastly, Fisher’s advice to only invest in what you understand is crucial today. The stock market now includes many companies with complex business models, particularly in sectors like technology and biotech. It’s vital for investors to understand what they’re investing in, how the company makes money, and what might affect its future profitability.

In conclusion, while specific stocks and market conditions have changed since Fisher’s time, the principles of his investment strategy remain relevant. They can serve as a guide for investors navigating the complexities of today’s stock market.

Philip Fisher’s “Common Stocks and Uncommon Profits” remains an invaluable resource for investors. His focus on quality businesses, innovative companies, and ethical management teams, coupled with his famous ‘scuttlebutt’ approach and long-term investment strategy, have left a lasting legacy in the investment world.

Even today, Fisher’s principles hold. As we navigate an increasingly complex investment landscape, his belief in thorough research, investing in quality, and holding for the long term serve as essential guiding principles for contemporary investors.

Indeed, for anyone interested in understanding the art of investing, “Common Stocks and Uncommon Profits” is a must-read classic that provides time-tested wisdom and insights into the world of investment.