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Book Review- Common Stock and Uncommon Profits


book_commonstocks_philipfisher Re-reading a book by Philip Fischer, Common Stock and Uncommon Profits which is a useful guide to providing the macro look to how to value a company.

According to the cover image, Warren Buffett has this to say about Philip A. Fisher the author of the book, “I am an eager reader of whatever Phil has to say, and I recommend him to you.”

I have read somewhere too that Buffett style of investing has been described as a mix of Graham Dodd value investing approach with the philosophy of the Fisher method of investment, which builds on the value approach and espouses the fundamental methodology that a careful and conservative investor uses in researching probable investing targets.

One of the most useful parts of the book is the chapter devoted to “What to Buy” and its classic 15 points which the author wrote back in 1958 and is still relevant today. The whole of the rest of this short blog post will list down what the 15 points are and you can judge whether it makes sense to you:

  1. Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least a few 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 currently 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 its profit margin?
  7. Does the company have outstanding labour and personnel relations?
  8. Does the company have outstanding executive relations?
  9. Does the company have depth to its management?
  10. How good are the company’s costs analysis and accounting controls?
  11. Are there any 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 a short range or long range outlook in regards to profits?
  13. In the foreseeable future will the growth of the company require sufficient equity financing so 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 troubles and disappointments occur?
  15. Does the company have a management of unquestionable integrity?

I think point 15 is the most important :) What do you think?

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