I’ve been putting together some chapter summaries with key highlights for the book Common Stocks and Uncommon Profits by Phil Fisher. It only makes sense for me to go through and highlight some of the key takeaways that I have had from reading and summarizing the book!
6 Key Takeaways
1- Create your own checklist and stick to it.
Fisher has 15 key points that he evaluates when deciding to purchase the stock of a company that range from all different types of evaluating metrics such as quantitative metrics like wide profits or sales growth to qualitative metrics such as the management having a high level of integrity or having depth to their management.
Only you can determine what is important enough to be included in that checklist, but you must decide for yourself. Some people will lean much more on the financials while some will lean on the qualitative, cultural aspects of the company.
Some will prefer revenue growth while some will focus more on earnings growth. There’s a never-ending amount of metrics that you can use to evaluate a company, but the important thing is for you to find out what is the most important in your own evaluations.
2- You don’t have to be a professional investor to analyze a company
For instance, I always would see people say that you should evaluate the company’s culture but how the heck am I supposed to do that?!?!
Fisher says that you can look at turnover, promoting from within, and the backgrounds of the management – are they all external hires or are they from within? In other words, just because a metric isn’t reported on an annual basis like revenues, profits or costs, doesn’t mean that you can’t evaluate it without being a professional – you just need to be creative!
3- Have a checklist of things to look for, but also a checklist of things to avoid
Fisher has his own list of ten major things to look out for when investing, a couple of which really stuck out to me, including not overstressing diversification. So many people will talk about the importance of being diversified but the #1 important thing is for you to be knowledgeable on the company that you are buying an ownership in.
Some people will buy stock simply to be diversified but I would argue that you’re making your portfolio even less risky. Yes, being diversified is obviously essential, but I’d rather be 100% confident in an undiversified portfolio than 20% confident about a diversified portfolio.
Just because you’re diversified doesn’t mean that you have a portfolio of winners. The other point of Fisher’s that stuck out to me was to not follow the crowd. Andrew and Dave frequently talk on their podcast to zig when others are zagging, and this is the exact same advice. Try to take the contrarian point of view and look at things from an alternative viewpoint.
If you’re always following the crowd, then you’re going to miss out on a lot of the major opportunities to really increase your wealth because by the time you, a non-professional investor with a full-time job, have become aware of this great opportunity, so have literally tens of thousands of other people.
You have to make the move before others do so, and to do that, you need to think the opposite of the common public perception.
4- Conservative investors really do sleep well
When you’re investing conservatively and have a large margin of safety then you’re not going to be up all night worrying about the different potential possibilities for how you might lose a ton of your wealth because of lackluster investments. You can simply have the “set it and forget it” mentality. Warren Buffett is on record for saying that “if you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes.” Those are great words to live by, and Fisher really expands on how to accomplish this margin of safety by focusing on the following areas:
- The Company Should Have Superiority in Production, Marketing, Research and Financial Skills
- The People Factor
- Investment Characteristics of Some Businesses
- Price of a Conservative Investment
5- Phil Fisher learned how to invest with two different methods, and you can too!
Fisher initially learned from philosophical methods, which is likely how you will learn as well. You are going to listen to others that you deem intelligent or successful and hope that they share their words of wisdom and teachings for how to make yourself an intelligent investor.
This might be a parent, friend, coworker or even a mentor, but the key is to have an open mind and listen to all insights! Even bad advice can be a learning lesson for your own financial growth.
After you have a good base knowledge, take your wisdom to work and start investing!
Now comes the fun part of learning from experience.
Chances are you’ll make some mistakes along the way and that’s completely fine! The difference between a fool and a wise man is that he learns from his mistakes!
6- “In and out may be out of the money”
Don’t try to time the market. This seems obvious, but you have to get this through your mind if you’re going to likely ever become a savvy investor. Time in the market beats timing the market and any successful investor will tell you the same.
The first year+ that I invested, I thought I could time it. Spoiler – I couldn’t. Find a good, safe, undervalued investment and put your money in!
Hopefully, some of these tips are things that you haven’t heard before and can learn from! I went much more in-depth in a lot of my individual book summaries that I’ve linked to throughout this post and hope that you can take a look and learn even more than I have outlined here.
And of course, if you want just to jump on and order the book, then I 1000% recommend that you do that as well. It’s less than $15 on Amazon right now…much cheaper than the mistake that you might make if you don’t fully utilize the knowledge of Phil Fisher!