Common Stocks and Uncommon Profits and Other Writings (Wiley Investment Classics)

by Philip A. Fisher

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.”

and seeking information from competitors, customers, and suppliers, all of whom have a vested interest in the target company, and few of whom have any reason to see the firm unrealistically.

club—the tech stocks that lost 95 percent or more of their value during the bear market because they were internet pipe-dreams, or whatever, with basically 1999 hype but nothing real there.

Think of how many internet stocks had no real sales force (and certainly none to intimidate a competitor), and no profit margin at all, and no plan to achieve profitability much less improve it, and no fundamental research, and no ability to exist without future equity financing. And, and, and. They couldn't have made it on half the fifteen points. Then, too, the fifteen points by exclusion would have eliminated quite a lot of other companies. But think of the firms of the prior decades that the fifteen points would not have eliminated.

Ditto for point five about a worthwhile profit margin. For example, in a commodity-type business, without natural growth, it is true that market share, relative production costs, and long-term profit margins all tend to be pretty tightly linked. Good management gains market share and lowers relative production costs, often by introducing enhanced production technology (the application of technology rather than the production of it). Bad management simply but irregularly lowers margins until they disappear. Hence, in 1976, I discovered Nucor, a tiny low-cost steel vendor— great management, innovative technology, lower production cost, high relative market share in tiny steel niches, gaining market share, and adding niches. I bought it as a value guy; my father followed me and promptly bought Nucor as a growth guy. Same fifteen points. I sold some years later at a huge profit, and my father held it for decades, selling at a much larger profit, by which time it had become the second-largest U.S. steel manufacturer.

because I had to learn the process rather than invent it, that it takes time to learn.

I'm more linear than my father was and in many ways more introspective,

popped out of his mind, unprepared, never having been written down in advance because they were the angle he picked up on the fly,

as

“What are you doing that your competitors aren't doing yet?”

It combined the best of Jim and my father, and the whole thing reminded me of how often in my life I was the plodding, mechanical fly-wheel around my father's eclectic brilliance. I'm not meaning to demean myself. I've done very well in life; but I am more linear, more deductive, harder working, more driven, and more direct than my father, who was vastly more a non-linear genius.

“The higher they go, the liar they get.”

Aunt Cary not only secretly bankrolled my father's education (something he never, ever knew), but also secretly gave my grandfather money to buy a car for Father that became serendipitously

he had Aunt Cary to “secretly” bankroll him behind the scenes. Without Cary, you likely would never have gotten this book.

Too old and too well educated for ideal cannon fodder,

But to Dean Witter, New York was the mecca.

Before then, scam artists would seek clients, tell half to do one thing, tell the other half to do the reverse, charge 20 percent of the profit on whatever happened, and pick up 10 percent of the spread no matter what happened. Hence percentage-of-profit contracts were illegal for all investment advisors for more than forty years unless the person had fewer than fifteen clients and did not advertise as an investment advisor.

is to be the first person to link the models of sustainable growth with the concept of competitive advantage.

note: For a very long time, that course was taught either by the author of the book you hold in your hand (for two years) or by his disciple, and by only one man before, ever.

Jack always used Common Stocks and Uncommon Profits as a formal or informal Stanford textbook for the course.

so that by about 1990 he held six stocks and by 2000 he held three.

None of it went well.

My advice to all investors is to stop making investment decisions of any ...

I think alot of other people knew he was doing this because he loved it andcouldn't quit, even if it wasn't good for him financially. But he was indulged by everyone, including me.

His few late-in-life purchases were not successful.

He saw life as like a muscle—if you worked it hard, it kept working for you; but if you let it relax, it would weaken (and in his mind it would lead to decay and death).

“Old age isn't for sissies.”

That was who he was: cool, cold, hard, tough, disciplined, non-social, never quitting, ever confident externally but internally often scared. And amazing.

But another feature of his life was that any technique he didn't learn before age fifty, he probably never learned. He had a lot going on by that age,

“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.' ”

But when I was fourteen and used money I'd saved from working part-time jobs to buy him a jacket to wear in the woods with me on a family trip, he would never wear it, preferring to wear, believe it or

not, an old sport coat he had owned forever. He hated change.

But he didn't like it one bit because it involved change;

and it took him most of a year to get over being annoyed at that habit change.

because he hated changing.

By Father's admission, he had just five friends in his whole life—

he rarely saw them.

an engineer, who had been close to Father since childhood. But he only saw or spoke to Johnny maybe once every four years as an adult. Father couldn't stand the guy's wife—

drove him crazy.

I was young and we went somewhere on business, I had to share a hotel room with him. We did this even after I could afford my own room because he couldn't handle the notion of me “wasting” the money.

When I was about thirty, I just couldn't do it any more. But one night in the early 1970's, we were together in Monterey at one of the first elaborate dog-and-pony shows for technology stocks—then known as “The Monterey Conference”— put on by the American Electronics Association. At the Monterey Con- ference, Father exhibited another quality I never forgot. The conference announced a dinner contest. There was a card at each place setting, and each person was to write down what he or she thought the Dow Jones Industrials would do the next day, which is, of course, a silly exercise. The cards were collected. The person who came closest to the Dow's change for the day would win a mini–color TV (which were hot new items then). The winner would be announced at lunch the

next day, right after the market closed at one o'clock (Pacific time). Most folks, it turned out, did what I did—wrote down some small number, like down or up 5.57 points. I did that assuming that the market was unlikely to do anything particularly spectacular because most days it doesn't. Now in those days, the Dow was at about 900, so 5 points was neither huge nor tiny. That night, back at the hotel room, I asked Father what he put down; and he said, “Up 30 points,” which would be more than 3 percent. I asked why. He said he had no idea at all what the market would do; and if you knew him, you knew that he never had a view of what the market would do on a given day. But he said that if he put down a number like I did and won, people would think he was just lucky—that winning at 5.57 meant beating out the guy that put down 5.5 or the other guy at 6.0. It would all be transparently seen as sheer luck. But if he won sayin...

the Dow was up 26 points, and father won by 10 points. When it was announced at lunch that Phil Fisher had won and how high his number was, there were discernable “Ooh” and “Ahhhh”sounds all over the few-hundred-person crowd. There was, of course, the news of the day, which attempted to explain the move; and for the rest of that conference, Father readily explained to people a rationale for why he had figured out all that news in advance, which was pure fiction, and why the market had done what it did, again pure fiction and nothing but false showmanship. But I listened pretty carefully, and everyone he told all that to swallowed it hook, line, and sinker. Although he was socially ill at ease always, and insecure, I learned that day that my father was a much better showman than I had ever fa...

peninsula,

Many investors have told me over the decades how they did this or that because of something they read in

Common Stocks and Uncommon Profits

Conservative Investors S...

is the need for patience if big profits are to be made from investment.

Doing what everybody else is doing at the moment, and therefore what you have an almost irresistible urge to do, is often the wrong thing to do at all.

I particularly hope that you will conclude the merit of the ideas I present may outweigh my defects as a writer.