Common Stocks And Uncommon Profits Summary (By Philip Fisher)

in the book common stocks and uncommon profits philip fisher described what he calls the scuttlebutt method for finding investments this method was the process of discovering as much about a company and its products as possible he developed a 15 point checklist to check if the company has growth potential and is a worthwhile investment hi welcome to the holder investor and in this video we will go over the top five lessons from the book common stocks and uncommon profits by philip fisher first the scuttlebutt method the scuttlebutt method consists in learning about a company and its investment merits by making intelligent questions for people involved in the business you can talk to competitors providers sellers clients executives employees and former employees common stocks and uncommon profits were published in 1958 nowadays with the internet it is easier to apply this method i will share with you the new ways of applying the scuttlebutt method watch executive interviews on youtube to learn about the company strategy listen to conference calls where investors and analysts make questions for the company about the results strategy and future projects use linkedin to ask questions to the people involved in the business look for client opinions online on review sites or youtube videos for example tesla owner videos on how they feel about their car use a social network to talk with clients check what the employees are saying about the company on sites like glassdoor the 15 points checklist will help you to make the right questions and that led us to the next point second 15 points to look for in a stock philip fisher says that the company must have most of the points and if it failed to qualify on many of them it is not a worthwhile investment point one does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years it is impossible to make a good profit from companies with a stationary or even a declining sales curve point two 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 at this point research and development begin to enter the picture it is largely through these means that companies improve old products and develop new ones point three how effective are the company's research and development efforts in relation to its size you can divide the research figure r and d by total sales and so learn the percent of each sales dollar that a company is devoting to this type of activity you can compare this number with other companies of the same segment each dollar spent in r d can become two dollars or more if the company is good at research and development point four does the company have an above average sales organization it is the making of a sale that is the most basic single activity of any business without sales survival is impossible it is the making of repeat sales to satisfy customers that is the first benchmark of success point five does the company have a worthwhile profit margin profit margin shows if the company has competitive advantages you should look at the historical data to see if the margin is constant or if it is growing over time sometimes the company can have a good margin during a period but this margin is cyclical and will not last for long point six what is the company doing to maintain or improve profit margins it is not the profit margins of the past but those of the future that are important to the investor many companies are constantly reviewing procedures and methods to see where economies can be brought about resulting in improved margins point seven does the company have outstanding labor and personnel relations if workers feel that they are fairly treated by their employer a background has been laid where an efficient leadership can accomplish much in increasing productivity per worker furthermore there is always a considerable cost in training each new worker those companies with an abnormal labor turnover have therefore an element of unnecessary expense avoided by better managed enterprises today with the internet we can check online what the employees are saying about the company you can use glassdoor for example that is a site where employees anonymously review companies point eight does the company have outstanding executive relations creating the right atmosphere among executive personnel is vital these are the men whose judgment ingenuity and teamwork will in time make or break any venture point nine does the company have depth to its management does top management welcome and evaluate suggestions from personnel even if at times those suggestions carry with them adverse criticism of current management practices point 10 how good are the company's cost analysis and accounting controls no company is going to continue to have outstanding success for a long period of time if it cannot break down its overall costs with sufficient accuracy and detail to show the cost of each small step in its operation only in this way will management know what most needs its attention only in this way can management judge whether it is properly solving each problem that does need its attention point 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 here we are looking into the competitive advantages of a company in relation to its competition like lower expenses better technologies patents and know-how point 12 does the company have a short range or long-range outlook in regard to profits the investor wanting maximum results should favor companies with a truly long range outlook concerning profits point 13 in the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares than outstanding will largely cancel the existing stockholders benefit from this anticipated growth check if the company's cash plus further borrowing ability is sufficient to take care of the capital needed to exploit the prospects of the next several years point 14. does the management talk freely to investors about its affairs when things are going well but clam up when troubles and disappointments occur the management that does not report as freely when things are going badly as when they are going well usually clams up in this way for one of several rather significant reasons it may not have a problem worked out to solve the unanticipated difficulty point 15. does the company have a management of unquestionable integrity invest in companies that the managements have a highly developed sense of trusteeship and moral responsibility to their stockholders this is a point concerning which the scuttlebutt method can be very helpful third when to buy people usually try to time the market by macro economics and economic forecasts the problem with this approach is that you probably don't have a crystal ball and the future is unpredictable anything can happen the chances of being right are not good enough to warrant such methods being used as a basis for risking the investment of savings investors should not try to make economic forecasts instead they should focus on choosing good companies and hold them for the long this will produce a handsome profit fourth when to sell for fisher there are three reasons to sell a stock the first reason to sell is when a mistake has been made in the original purchase and it becomes increasingly clear that the factual background of the particular company is by a significant margin less favorable than originally believed when this happens losses if any should be far smaller than if the stock bought an error had been held for a long period of time however there is a complicating factor that makes the handling of investment mistakes more difficult this is the ego in each of us none of us likes to admit to ourselves that we have been wrong second reason when the company no longer qualifies in regard to the 15 points checklist to about the same degree it qualified at the time of purchase this is why investors should be constantly on their guard it explains why it is of such importance to keep at all times in close contact with the affairs of companies whose shares are held when companies deteriorate in this way they usually do so for one of two reasons either there has been a deterioration of management or the company no longer has the prospect of increasing the markets for its product in the way it formerly did third reason better investment opportunities caution there is always the risk that some major element in the picture has been misjudged if this happens the investment probably will not turn out nearly as well as anticipated fifth when not to sell the first reason not to sell is fear of a bear market if the company is a really good one the next bull market should see the stock making a new peak well above those so far attained but it is almost impossible to hit when the market will down and when it will rise again so if you hold a good company for the long run you do not need to worry about bear markets second reason the argument that an outstanding stock has become overpriced and therefore should be sold what is more logical than this if a stock is overpriced why not sell it rather than keeping it the investor cannot pinpoint just how much per share a particular company will earn two years from now he can at best judge this within such general and non-mathematical limits as about the same up moderately up a lot or up tremendously under these circumstances how can anyone say with even moderate precision just what is overpriced for an outstanding company with an unusually rapid growth rate if the growth rate is so good that in another 10 years the company might well have quadrupled is it really of such great concern whether at the moment the stock might or might not be 35 percent overpriced third reason the stock they own has had a huge advance therefore just because it has gone up it has probably used up most of its potential consequently they should sell it and buy something that hasn't gone up yet outstanding companies just don't function this way as they are an excellent business they continue to grow over time and if you sell you will not get the compound returns for example let's say you bought amazon at 20 in 2002 and in 2013 the stock price was 393 dollars it is a really good return right but if you have held the stock until today it would value 3335. perhaps the thoughts behind this might be put into a single sentence if the job has been correctly done when a stock is purchased the time to sell it is almost never i am starting this channel so please if you learned something in this video click on the like button and subscribe to receive the next videos leave a comment below about which of the 15 points checklist you most liked thank you very much for your time see you next time you

Channel: The holder investor

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Keywords: Common stocks and uncommon profits, common stocks and uncommon profits by philip fisher, philip fisher, common stocks and uncommon profits summary, growth investing, how to choose growth stocks, Buffett, Stock market, Invest, How to start investing, Warren Buffett, Benjamin Graham, how to make money, investing, investing for beginners, how to invest in stocks, investing strategies, The Holder Investor, stock market, The scuttlebutt method, scuttlebutt method

Id: BNMGcDNHSGI

Length: 11min 43sec (703 seconds)

Published: Tue Oct 26 2021