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

by Philip A. Fisher

nest egg against a rainy day.

Fortunately, there is strong evidence indicating that the opportunities of today are not only as good as those of the first quarter of this century but are actually much better.

Today, in contrast, about 80 per cent of the federal revenue comes from corporate and personal income taxes.

Deficits of this type would produce further inflation in much the same way that the deficits resulting from wartime expenditures produced the major price spirals of the postwar period.

Another basic financial trend has resulted from this built-in inflationary bias having become imbedded so deeply in both our laws and our accepted concepts of the economic duties of government. Bonds have become undesirable investments for the strictly long-term holdings of the average individual investor. The rise in interest rates that had been going on for several years gained major momentum in the fall of 1956. With high-grade bonds subsequently selling at the lowest prices in twenty-five years, many voices in the financial community were raised to advocate switching from stocks which were selling at historically high levels into such fixed-income securities. The abnormally high yield of bonds over dividend return on stocks—in relation to the ratio that normally prevails—would appear to have given strong support to the soundness of this policy. For the short term, such a policy sooner or later may prove profitable. As such, it might have great appeal for those making short- or medium-term investments—that is, for “traders” with the acuteness and sense of timing to judge when to make the necessary buying and selling moves. This is because the coming of any significant business recession is almost certain to cause an easing of money rates and a corresponding rise in bond prices at a time when equity quotations are hardly likely to be buoyant. This leads us to the conclusion that high-grade bonds may be good for the speculator and bad for the long-term investor. This seem...

It is almost certain that a depression will produce further major inflation;

greatest investment reward comes to those who by good luck or good sense find the occasional company that over the years can grow in sales and profits far more than industry as a whole.

we believe we have found such a company we had better stick with it for a long period of time.

what really counts is a management having both a determination to attain further important growth and an ability to bring its plans to completion.

competitors are only one and not necessarily

the best source of informed opinion.

always important to check carefully into why employees left the company being studied.

POINT 1.

It is by no means impossible to make a fair one-time profit from companies with a stationary or even a declining sales curve.

Operating economies resulting from better control of costs can at times create enough improvement in net income to produce an increase in the market price of a company's shares.

Those companies which decade by decade have consistently shown spectacular growth might be divided into two groups. For lack of better terms I will call one group those that

happen to be both

“fortunate an...

and

the other group those...

“fortunate because they ...

A high order of management ability is a must ...

No company grows for a long period of years just because it is lucky. It must have and continue to keep a high order of business skill, otherwise it will not be able to capitalize on its good fortune and to de...

regardless of whether such a company more closely resembles the “fortunate and able” or the “fortunate because it is able” type.

the investor must be alert as to whether the management is and continues to be of the highest order of ability; without this, the sales growth will not continue.

POINT 2.

improve old products and develop new ones.

already within the scope of company activities.

1

matter of fact, appraising the degree of potential sales growth that now exists for a company's product.

a matter of management...

importance of a company's research effort in relation to competition

This is largely because the big strides in the way of new products and processes are no longer the work of a single genius. They come from teams of highly trained men, each with a different specialty. One may be a chemist, another a solid state physicist, a third a metallurgist and a fourth a mathematician. The degree of skill of each of these experts is only part of what is needed to produce outstanding results. It is also necessary to have leaders who can coordinate the work of people of such diverse backgrounds and keep them driving toward a common goal.

It is no simple task for management to bring about this close relationship between research, production, and sales. Yet unless this is done, new products as finally conceived frequently are

an outstanding technical college quietly advised its graduating class to avoid employment with a certain oil company. This was because top management of that company had a tendency to hire highly skilled people for what would normally be about five-year projects. Then in about three years the company would lose interest in the particular project and abandon it, thereby not only wasting their own money but preventing those employed from gaining the technical reputation for accomplishment that otherwise might have come to them.

One project might produce a magnificent new weapon having no non-military applications. The rights to this weapon would all be owned by the government and, once invented, it would be sufficiently simple to manufacture that the company which had done the research would have no advantage over others in bidding for a production contract. Such a research effort would have almost no value to the investor.

Market research

the bridge between developmental research and sales.

Top management must be alert against the temptation to spend significant sums on the research and development of a colorful product or process which, when perfected, has a ge...

By too small to be profitable I mean one that never will enjoy a large enough sales volume to get b...

much less a worthwhile profit for ...

Once again it is surprising

what the “scuttlebutt” method will produce.

Until the average investo...

POINT 4.

above-average

In this competitive age, the products or services of few companies are so outstanding that they will sell to their maximum potentialities if they are not expertly merchandised. 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 satisfied customers that is the first benchmark of success.

production,

research,