Warren Buffet said he is 85% Ben Graham and 15% Philip Fisher he has also said ” I am an eager reader of whatever Phil has to say and I recommended him to you.” He has recommended his book Common Stocks and Uncommon Profits to investors in his letters to shareholders.
The book contents are divided into three sections.
The first section talks about the things you can learn from the past. Fifteen points you should be looking for investment in any company. Those 15 points are
1. Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?
2. Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials ?
3. How effective are the company’s research and development efforts in relation to its size?
4. Does the company have an above-average sales organization?
5. Does the company have a worthwhile profit margin?
6. What is the company doing to maintain or improve profit margins?
7. Does the company have outstanding labor and personnel relations?
8. Does the company have outstanding executive relations?
9. Does the company have depth to its management?
10. How good are the company’s cost analysis and accounting controls?
11. Are the other aspects of the business, somewhatpeculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?
12. Does the company have a short-range or long-range outlook in regard to profits?
13. In the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders’ benefit from this anticipated growth?
14. Does the management talk freely to investors about its affairs when things are going well but “clam up” when troubles and disappointments occur?
15. Does the company have a management of unquestionable integrity?
Then he talks about when to buy, when to sell and when notto sell.
In the 2nd section he talks about the ten things that investor should not do which are
- Don’t buy into promotional companies.
- Don’t ignore good stocks just because it is traded over the counter.
- Don’t buy the stock just because you like the tone of its annual report.
- Don’t assume that the high price at which a stock may be selling in relation to earnings is necessarily an indication that further growth in those earnings has largely been already discounted in the price.
- Don’t quibble over eighths and quarters.
- Don’t overstress diversification.
- Don’t be afraid of buying on a war scare.
- Don’t forget your Gilbert and Sullivan.
- Don’t fail to consider time as well as price in buying a true growth stock.
- Don’t follow the crowd
In the third section he talks about how to develop a right investment philosophy
I liked the book but I found the 15 points that he has mentioned are tough to apply specially for a retail investor. Its specifically about the stocks which you can hold for very very long term 10-30 years. Book is a good read to understand the qualitative analysis things.