Philip A. Fisher’s iconic book, Common Stocks and Uncommon Profits, still remains a timeless guide for investors. First published on 30 November 1957, the book has sustained its essence for both upcoming investors and professionals alike.
With the Indian equity markets witnessing a surge in retail participation and a growing appetite for long term equity and mutual fund investing, Fisher’s principles are more significant than ever.
His primary focus on quality management, deep research, sensible stock selection and long term thinking offers invaluable direction to investors navigating today’s rapidly evolving and volatile stock markets.
Here are seven prudent lessons from Fisher’s investing ideology, designed to help investors make informed and smarter investment decisions.
1. Conduct thorough research
Fisher discussed the significance of in-depth analysis before investing. In his book he stated, “The successful investor is usually an individual who is inherently interested in business problems.” He was an advocate for understanding a company’s financial position, industry legacy, competitive advantages and long-term growth prospects.
This ideology of Fisher’s is aligned with the ‘scuttlebutt’ method, where investors primarily gather information from various different sources, including customers, agents, suppliers and competitors. All of this information permits investors to make smart investment decisions.
2. Embrace the ‘Scuttlebutt’ technique
Fisher introduced the concept of ‘scuttlebutt’ approach. The main objective of this approach was to encourage investors to seek insights beyond financial statements and annual accounts. Discussing with industry leaders, peer competitors and company insiders can reveal significant qualitative factors that influence a company’s long term prospects. Therefore, investors should keep these points in mind while deciding on investing in a business.
3. Focus on a few outstanding investments
Diversification has its merits, still Fisher believed in the idea of concentrating on a selected few stocks. All such stocks must have a moat and should be high quality businesses. This point has been elaborated by him in the book, “I don’t want a lot of good investments; I want a few outstanding ones.” This strategy of investment permits investors to think and allocate resources efficiently and monitor investments closely.
4. Invest for the long term
Patience is a virtue in investing. Fisher advised holding onto well-researched stocks, allowing them to compound over time. This principle is particularly relevant in the Indian context, where long-term investments can benefit from economic growth and market development. “If the job has been correctly done when a common stock is purchased, the time to sell it is—almost never.”
5. Assess management quality
Understanding the vision and evaluating a company’s leadership is crucial. Fisher stressed on the importance of sincerity, integrity, competence and vision in top management teams. That is why the fundamental values of promoters or leadership teams go a long way in deciding the trajectory of a company.
6. Make innovation a strategic priority
All businesses that invest in research and strategic development often stay ahead of peers. Fisher highlighted the significance of innovation as a driver of long-term growth and prosperity. That is why focus should be laid on firms that demonstrate a sincere commitment to technological advancement and product development.
7. Avoid over-diversification
Given spreading investments can immensely mitigate risk, still excessive diversification can dilute returns and can also contribute to portfolio underperformance. Fisher hence, has cautioned against holding several stocks as such a practice can result in mediocre performance. “A little bit of a great many can never be more than a poor substitute for a few of the outstanding.”
Conclusion
Hence, Philip Fisher’s timeless principles from Common Stocks and Uncommon Profits offer valuable insights for navigating today’s markets. By focusing on proper research, quality and long-term vision, investors can make smarter investment decisions.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Readers are advised to consult a qualified financial advisor before making any investment decisions.
