Common Stocks and Uncommon Profits and Other Writings
Philip A. Fisher and Kenneth L. Fisher
50 min
9 Key Points
4.9 RateWhat's inside?
Explore the timeless investment strategies of Philip A. Fisher, learn how to identify high-quality stocks, and understand the potential for long-term growth in the stock market.
You'll learn
1. What to look for when picking stocks2. Knowing the right time to buy or sell stocks3. Why the boss matters in a business4. Making sense of a company's financial health5. The lowdown on "scuttlebutt" in making investment choices6. Why playing the long game in investing pays off.Key points
01Why Settle for Average Market Returns?
Most people approach the stock market with a mindset that is fundamentally flawed from the very beginning. They look at the stock exchange as a giant, unpredictable casino where the main goal is to buy a piece of paper at a low price and quickly sell it to someone else at a higher price. This constant trading in and out of positions, hoping to catch a lucky break or ride a short-term trend, is precisely why so many people fail to achieve any meaningful financial success. But what if there was a completely different, highly systematic way to build immense wealth over time? Philip A. Fisher, one of the most influential investors of the twentieth century, proposed a radical shift in perspective. He argued that to achieve truly uncommon profits, you must stop looking at stocks as mere ticker symbols dancing on a screen and start looking at them as partial ownership in living, breathing businesses. To fully appreciate the genius of Fisher’s approach, it helps to understand the historical context in which he developed his philosophy. Fisher started his investment firm in 1931, right in the darkest, most terrifying depths of the Great Depression. While other investors were paralyzed by fear, watching businesses collapse all around them, Fisher was quietly observing what made certain companies survive and even thrive during catastrophic economic times. He noticed that the companies that succeeded were not necessarily the ones trading at the cheapest valuations. Instead, they were the companies that possessed outstanding products, brilliant management teams, and a relentless drive to grow their sales and profits year after year. This observation formed the bedrock of his growth investing philosophy, which stands in stark contrast to the traditional "value investing" approach popularized by his contemporary, Benjamin Graham. Value investors historically focused on finding "cigar butt" companies. The idea was to find a discarded, beaten-down business that was trading for less than its liquidation value. You pick it up, take one last free puff of profit as the market corrects the price, and then throw it away. While this method can certainly work, it requires you to constantly hunt for new bargains, pay taxes on your short-term gains, and watch the market like a hawk. Fisher despised this approach. He believed that the greatest returns in the stock market do not come from buying mediocre companies at cheap prices, but rather from buying truly exceptional companies at reasonable prices and holding onto them for decades. He understood that a magnificent business will compound your wealth internally, doing all the hard work for you while you sit back and let time work its magic. Consider the analogy of planting a garden. The traditional trader is like a gardener who plants radishes. Radishes grow quickly, allowing you to harvest them in just a few weeks, but the yield is incredibly small, and you have to immediately start digging in the dirt to plant a new crop. Fisher’s approach is like planting an oak tree. For the first few years, it might seem like nothing spectacular is happening above the surface. However, beneath the soil, the roots are growing deep and strong. Decades later, that tiny acorn has transformed into a massive, unshakeable tree that drops thousands of new acorns every single year without requiring any additional effort on your part. Fisher’s ultimate goal was to find the corporate equivalent of those oak trees—businesses that could multiply your initial investment tenfold, twentyfold, or even a hundredfold over a period of ten to twenty years. Of course, finding these rare, wealth-compounding machines requires a completely different analytical toolkit than what the average Wall Street analyst uses. You cannot find a hundred-bagger stock simply by running a quick screen on a financial website or looking at a company's past dividend history. In fact, Fisher was highly skeptical of companies that paid out large dividends. Why? Because if a company truly has incredible growth prospects, it should be reinvesting every available dollar back into research, development, and expansion. Paying out a large dividend is often a subtle admission by management that they have run out of profitable ideas for the business. By focusing heavily on historical financial metrics, most investors are looking in the rearview mirror, trying to drive down a winding road by looking at where they have already been. Fisher challenges us to look out the windshield. He demands that we evaluate what a company is going to do in the future, not what it did in the past. This requires qualitative analysis, which is much harder to measure than quantitative analysis. It requires understanding human behavior, corporate culture, market dynamics, and the hidden forces that drive innovation. It requires a relentless curiosity and a willingness to do the hard, unglamorous investigative work that most people are simply too lazy to do. But for those who are willing to put in the effort, the rewards are absolutely staggering. When you finally uncover a company that possesses all the traits of a long-term compounder, you stop worrying about daily market fluctuations. You realize that a temporary drop in the stock price is meaningless as long as the underlying business continues to execute its massive growth strategy. By adopting Fisher's mindset, you free yourself from the anxiety of the daily news cycle and step into the calm, calculated world of the intelligent business owner.
02The Legendary Scuttlebutt Method Revealed
Whenever we want to buy a new car, a major household appliance, or even just pick a restaurant for a special anniversary dinner, we naturally conduct a thorough investigation. We ask our friends for their honest opinions, we read countless online reviews, and we might even walk around a showroom to inspect the product ourselves. We do all of this to protect a few hundred or a few thousand dollars. Strangely, when it comes to investing tens of thousands of dollars of their hard-earned savings into a stock, most people abandon this basic common sense. They rely on nothing more than a brief, highly polished annual report published by the company itself, or worse, a hot tip from a talking head on a financial news network. Philip Fisher recognized that relying solely on a company's self-reported financial statements is incredibly dangerous, which is why he pioneered the legendary investigative technique he called the "scuttlebutt" method. What exactly is scuttlebutt? In naval terminology, a scuttlebutt was a water barrel on a ship where sailors would gather to drink and gossip. Over time, the word became synonymous with rumors, insider talk, and the informal grapevine of information. Fisher took this concept and applied it to the corporate world. The scuttlebutt method involves acting like an investigative journalist, getting away from the sterile environment of Wall Street, and going out into the real world to talk to the people who interact with the business on a daily basis. Fisher believed that if you ask the right questions to the right people, you can piece together an astonishingly accurate and comprehensive picture of a company’s true strengths and weaknesses—a picture that will never show up on a standard balance sheet. The first and most valuable group of people to talk to are the company’s direct competitors. This might sound counterintuitive at first. After all, won't competitors just say terrible things out of spite? Fisher found that business leaders are surprisingly candid when discussing their industry rivals. If you ask an executive about a competitor and they casually dismiss them as irrelevant, it might mean the competitor is truly struggling. However, if you ask an executive what keeps them up at night, and they grudgingly admit that a specific rival has a massive distribution advantage, a superior technology patent, or an incredibly aggressive sales force, you have just struck investigative gold. There is no higher praise than the fearful, reluctant respect of a direct competitor. They know exactly where the bodies are buried in their industry, and their insights are invaluable. Next, you must talk to the company’s customers and suppliers. Customers are the lifeblood of any business, and they will tell you exactly why they choose to spend their money where they do. Imagine you are researching a software company. If you take one of their major enterprise customers out for a cup of coffee and ask them about the product, they might tell you that the software is incredibly buggy, the customer service is terrible, and they are actively looking for an alternative. That single conversation just saved you from making a disastrous investment, no matter how good the company's current quarter earnings look. On the flip side, if the customer tells you that the software is so deeply integrated into their daily operations that they could not function without it, and that they would gladly pay double the price if forced to, you have discovered a company with immense pricing power and a massive competitive moat. Suppliers are equally revealing. They know if a company is constantly late on paying its bills, which is a massive red flag for cash flow problems, or if the company is forecasting massive increases in raw material orders, signaling a boom in upcoming sales. Former employees offer yet another critical perspective, though Fisher warns that this source of information must be handled with extreme care. When you talk to ex-employees, you get an unvarnished look into the corporate culture, the internal politics, and the true effectiveness of the management team. You can learn whether the top executives actually foster innovation or if they rule by fear and micromanagement. However, you must always filter this information through the lens of human bias. A disgruntled employee who was fired for poor performance might paint an overly negative picture of a perfectly healthy company. Therefore, you must look for recurring patterns and consensus among multiple former employees rather than relying on a single, bitter testimony. Finally, trade association executives, academic researchers, and industry scientists can provide incredible macro-level insights into where an entire sector is heading. These individuals dedicate their lives to studying specific fields and are usually thrilled to share their knowledge with anyone genuinely interested. If you are looking at a pharmaceutical company, talking to a university researcher in the same medical field can help you understand if the company's new wonder drug is actually a scientific breakthrough or just a clever marketing spin on an old formula. You might be thinking that as an individual investor, you simply do not have the time, the connections, or the professional standing to call up corporate executives and industry scientists. But the beauty of the scuttlebutt method in the modern era is that the internet has done a massive amount of the heavy lifting for you. Today, we have access to professional networking sites, employee review platforms, customer complaint forums, and industry podcasts. You can read thousands of employee reviews to gauge corporate culture. You can watch interviews with competing CEOs on video platforms. You can join specialized online forums where customers passionately debate the merits of different products. The tools have evolved, but the underlying philosophy remains exactly the same. By relentlessly gathering independent, qualitative data from every possible angle, you build a three-dimensional model of the business. You stop guessing and start knowing. This informational advantage is the ultimate key to uncovering the rare, phenomenal companies that will drive your portfolio to uncommon profits.
Continue reading with LeapAhead app
Full summary is waiting for you in the app
03Fifteen Points to Find a Truly Great Stock
04Digging Deeper into the Winning Fifteen
05The Final Pillars of a Phenomenal Company
06Timing the Market: When to Buy and Sell
07The Costly Mistakes You Must Absolutely Avoid
08Conclusion
About Philip A. Fisher and Kenneth L. Fisher
Philip A. Fisher was a renowned American stock investor known for his long-term investment perspective. His son, Kenneth L. Fisher, is an investment analyst, author, and the founder of Fisher Investments, a multi-billion dollar money management firm. Both have contributed significantly to investment literature.