INERTIA WEALTH CREATORS

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Why profits are uncommon in common stocks?

June 1, 2015

 

Philip A. Fisher (Born: San Francisco, California in 1907; Died 2004 ), one of the greatest investors ever, explained his investment philosophy in one of the most popular investment books: ‘Common stocks and uncommon profits’. In this newsletter, we list some of the eye opening quotes from this book. In the next edition, we will list out the fifteen points used by him to select winning stocks.
1) The importance of research: This book is dedicated to all investors, large and small, who do NOT adhere to the philosophy: “I have already made up my mind, don’t confuse me with facts!”

2) Why you must be careful about your stock broker? There was magnificent opportunity on the west coast for a specialized investment counselling firm that would make itself the direct antithesis of certain stockbrokers – men who know the price of everything and the value of nothing.

3) Two most important insights: I) Need for patience if big profit is to be made (often it is easier to arrive at a target price than likely time elapsed to achieve the same), II) Doing what everybody else is doing at the moment is often the wrong thing to do at all).

4) Two very different methods used to make money in the stock markets: I) Timing the market by betting on the business cycle ( buying in bad times and selling in good times) and II) Finding the really outstanding companies and staying with them through all market fluctuations. Second method has been much more profitable than the first…

5) Why high quality stocks are superior investments vs bonds in long term: If economy does well, they will do better than bonds. If not, even if they underperform bonds in short-term, a ‘depression-like’ situation will force government to run high fiscal deficit, inducing inflation and hence impacting bond prices!

6) Growth is life: Best investment reward comes from finding ‘growth companies’ and sticking with them for long periods of time. Such companies, irrespective of their size, outperform their industry in revenue as well as profit growth. Management of such companies have determination to attain further important growth and ability to bring its plans to completion.

7) The ‘scuttlebutt’ method of research: Even before meeting a company which is a prospective investment, take feedback from
1) Competitors
2) Vendors
3) Customers
4) Experts
5) Trade association personnel
6) Ex-employees.

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