Investing Insights from the Book ‘Common Stocks And Uncommon Profits’
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‘Common Stocks And Uncommon Profits’ is one of the best books on investment written by Philip A. Fisher. The book explains the growth investing strategy and its superiority in generating maximum long term returns.
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Here are some of the investing insights offered in the book. Hope it is useful.
Important Excerpts From ‘Common Stocks And Uncommon Profits’
“One is the need for patience if big profits are to be made from investment. It is often easier to tell what will happen to the price of the stock than how much time will elapse before it happens. The other is the inherently deceptive nature of the stock market. 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.”
“Even in those earlier times, finding the really outstanding companies and staying with them through all the fluctuations of a gyrating market proved far more profitable to far more people than did the more colorful practice of trying to buy them cheap and sell them dear.”
“To the stock holder in the growth company with sufficient financial strength or borrowing ability to withstand a year or two of hard times, a business decline represents far more a temporary shrinking of the market value of his holdings than the basic threat to the very existence of the investment itself. “
“Postponing an attractive purchase because of fear of what the general market might do will, over the years, prove very costly. This is because the investor is ignoring a powerful influence about which he has positive knowledge through fear of a less powerful force about which, in the present state of human knowledge, he and everyone else is largely guessing.”
“The 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. When we believe we have found such a company, we had better stick with it for a long period of time. It gives us a strong hint that such companies need not necessarily be young and small. Instead, regardless of size, what really counts is a management having both a determination to attain further important growth and an ability to bring its plans to completion.”
“From the standpoint of the investor, sales are only of value when and if they lead to the increased profits. All the sales growth in the world won’t produce the right type of investment vehicle if, over the years, profits do not grow correspondingly.”
“Actually, the investor’s work is so specialized and so intricate that there is no more reason why an individual should handle his own investments than he should be his own lawyer, doctor, architect, or automobile mechanic. He should perform these functions if he has special interest in and skill at the particular field. Otherwise, he definitely should go to an expert.”
“Suppose a stock rises to, say, 50 or 60 or 70, the urge to sell and take a profit now that the stock is ‘high’ becomes irresistible to many people. Giving in to this urge can be very costly. This is because the genuinely worthwhile profits in stock investing have come from holding the surprisingly large number of stocks that have gone up many times from their original cost. The only true test of whether a stock is ‘cheap’ or ‘high’ is not its current price in relation to some former price, no matter how accustomed we may have become to that former price, but whether the company’s fundamentals are significantly more or less favorable than the current financial-community appraisal of that stock.”
“The young growth stock offers by far the greatest possibility of gain. Sometimes this can mount up to several thousand percent in a decade. But making at least an occasional investment mistake is inevitable even for the most skilled investor.”
“One reason for the sale of any common stock 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. If the job has been correctly done when a common stock is purchased, the time to sell it is -almost never.”
“For the small investor wanting to buy only a few hundred shares of a stock, the rule is very simply. If the stock seems the right one and the price seems reasonably attractive at current levels, buy “at the market.” The extra eighth, or quarter, or half point that may be paid is insignificant compared to the profit that will be missed if the stock is not obtained. Should the stock not have this sort of long-range potential, I believe the investor should not have decided to buy it in the first place.”
“Investors have been so oversold on diversification that fear of having too many eggs in one basket has caused them to put far too little into companies they thoroughly know and far too much in others about which they know nothing at all. Buying a company without having sufficient knowledge of it may be even more dangerous than having inadequate diversification. Usually a very long list of securities is not a sign of the brilliant investor, but of one who is unsure of himself.”
“An investor should always realize that some mistakes are going to be made and that he should have sufficient diversification so that an occasional mistake will not prove crippling. However, beyond this point he should take extreme care to own not the most, but the best. In the field of common stocks, a little bit of a great many can never be more than a poor substitute for a few of the outstanding.”
“The point which is of real significance is that the price is based on the current appraisal of the situation. As changes in the affairs of the company become known, these appraisals become correspondingly more or less favorable. Therefore, the price at which the stock sold four years ago may have little or no real relationship to the price at which it sells today.”
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