1-Sentence-Summary: Common Stocks and Uncommon Profits paves the way to success for all investors by outlining how to analyse stocks, understand the market, make smart investments and wise money decisions, and profit from them by being patient with the stock market and keeping your money in for the long-term.
Read in: 4 minutes
Favorite quote from the author:
Investing in the stock market implies having a knowledge base, strong self-control, a rational mind, and minimizing the emotional factor of your actions. All of these traits require hard work and determination to master. The best way to start is to get accustomed to the concepts and philosophy behind the money market.
Although it’s constantly evolving, the basic concepts remain the same. The intrinsic value of a company is determined by its fundamentals. Meanwhile, the stock price is a result of how the company is perceived by investors. This can change from day to day, due to factors like external events, changes in management, market corrections, and others.
Common Stocks and Uncommon Profits by Philip Fisher is a great tool for those who are looking to understand how the stock market works and want to place their hard-earned money into wise investments. This book won’t teach you how to get rich quickly and escape hard work. However, it will offer a series of valuable lessons on how to steadily grow and maintain your wealth for a financially secure life.
Here are my three favourite lessons from the book:
- Know what to look for in a company before investing in it.
- When a stock’s price falls, that’s the moment to buy.
- Keep your eyes on the future by investing in stable companies.
Now, let’s take a closer look at these lessons and see what they have to offer!
Lesson 1: You must perform a comprehensive analysis on your stock before you invest in it.
Naturally, you can’t just place your money in a company without conducting comprehensive research on it beforehand. So where do you start? First, make a list of the companies you wish to research. You could also look up potential names from the industries that you understand best.
Then you will have to narrow it down by conducting extensive analysis. Research their activity profile and industry analysis, their competitors, their main clients, and how they manage their money. These are all challenging to research, that is why the scuttlebutt method can prove to be highly efficient.
It implies contacting their stakeholders directly and learning information firsthand. This way, you get to form your own idea about the company in the most accurate way. However, it can be quite time-consuming to do such thorough research. So make sure you pick the right stocks to work with.
Make sure to take into account their management effectiveness and if they’re investing in research and development. This denotes if they’re oriented towards the future when it comes to their product line and services. Moreover, check their reputation when it comes to employee and customer satisfaction to know if they have a strong or weak organization.
Lesson 2: Always buy low and then sell your stock for a higher price.
Essentially, investing comes down to buying and selling, right? Of course, the best way to increase your wealth is to buy a stock when the price is low, and then sell it later on when you see an increase. Although this sounds obvious, you’d be surprised to see how your mentality changes when it comes to practice.
When money’s in the game, people often get scared when their stocks fall, and therefore panic sell to avoid further losses. More often than not, the stock will recover and the price will increase significantly. Thus, the average investor will want to hop on this train and catch the upward trend due to the fear of missing out. This process repeats itself again and again.
This often creates overvalued or undervalued stocks in the market. As a long-term investor, you must always look for the future. Learn that the market is irrational and is always acting on short-term events. For example, a well-established company may drive down its profits due to an expense in the R&D department. Although this will benefit the company later, investors don’t see it that way.
If you time your entry properly, you can increase your wealth significantly. Then, keep your position during market dips, as they’re transitory, and focus on the long-term. Warren Buffett, one of the greatest investors of all time, once said: “Be fearful when others are greedy, and greedy when others are fearful.”
Lesson 3: Look for mature companies and seek stable, long-term profits.
To trade or to invest – that’s the dilemma many people face. It may look appealing to cash in short-term profits or sell when you catch your stock going down early. The greatest investors, however, suggest that you should always keep your position in the market. Try not to time it, as the market is irrational and short-term oriented.
What this means is that, instead of trying to buy during the dips and sell at all-time highs, which is in fact quite an impossible feat, you should rather keep your money invested in the companies you’ve thoroughly researched. Of course, you can time your entry points and recurring buys, if you see that there’s a significant dip for no fundamental reason and the market is just being irrational.
What I mean by fundamental reason is a change in the company’s fundamentals. Aim to invest in mature businesses, with high-profit margins compared to their operational income, high employee satisfaction, high customer retention and recurrence, and if possible, ownership of patents and scale distribution mechanisms. These aspects are valuable in any analysis, as they determine not just the present value of an enterprise, but its future prospects.
Common Stocks and Uncommon Profits Review
Common Stocks and Uncommon Profits is a valuable piece of writing on the stock market and the analysis of potential investments, as it offers both the newbie and intermediate investor all the information needed to enter the field. If you’re looking to accumulate and maintain wealth over time, this book is perfect for you. The strategies presented in this book have passed the test of time, thus becoming evergreen concepts to be studied and applied by all investors.
Who would I recommend our Common Stocks and Uncommon Profits summary to?
The 25-year-old stock market investor who wants to learn more about this field, the 21-year-old finance student who wants to expand their knowledge in this domain outside their classes, or the 30-year-old who wants to start a retirement fund and is looking for ways to invest the money they’ve saved so far.
Last Updated on May 19, 2023