Reading Common Stocks And Uncommon Profits once is not enough and have already read it twice. It is a book that should be read more than once by every investor. A book that has added few more checkpoints to my fundamental analysis and investment checklist.
Let me share an example first of Thyrocare which was one of the stocks I was considering for investing because it passed all the checklist I had. After reading this book, I have few more checklist now Thyrocare isn’t on my investment list because I analyzed businesses more from a financial point of view but this book has added a new perspective of analyzing from a business point of view.
I discussed thyroid tests with my doctor friends and this is when I realized that any lab can do thyroid tests and doesn’t need to go to Thyrocare. There isn’t any entry barrier for such tests but labs don’t do it in-house and pass it to Thyrocare because it is a cheaper option for them to outsource to Thyrocare. The entry barrier is an important aspect that one should consider when investing in any business.
For me, the most important factor for investment has always been sales growth because I think if the sales is growing, over time it will reflect in the revenue and to the bottom line. I always prefer stocks with potential to grow and now I have an author confirmed the same and this is when things really got exciting for me.
Stocks that can grow in sales and revenue at much better rate than its peers will be rewarded by the market but then that high PE shouldn’t be discouraging you from getting into those stocks.
If a company can pass the 15 points business checklist there is no chance (at least as per the author) that a company will have any issue with the growth and future prospects.
I will share the 15 points exactly as they are in the book.
Answering the above questions helps with what you should be investing in and what you should be avoiding for sure.
A chapter dedicated to when you should be buying. Doesn’t deal with technical analysis but on the basis of fundamentals. Is company expanding for growth or investing its profits into building bigger capacity expansion and so on and so forth.
When one should be selling and though the preferred time is when you need money apart from personal needs author shares only 3 points when one should be selling those good stocks because it isn’t that easy to buy right companies easily.
The 3 points when you should sell are:
There are 10 don’ts for investors span over in 2 chapters. The best one that I liked on that list and I quote:
Don’t assume that the high price at which 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.
The reason I really this point more is because at times I buy those High PE stocks in my portfolio because I see sales growth in those company and the current price that you should be willing to pay for the purchase of stock should not be calculation of the previous performance but for the future growth prospects of the company.
The book talks about what is over diversification and how one shouldn’t be afraid to buy on a war scare.
The author talks about how one should extract information about a company not from wall street or Dalal street for India but from the main street by talking with the customers, distributors, competitors and so on and so forth.
Questions one should be asking to the companies management. One question that author shares is “what a company is doing that your competitors aren’t?”
Finally author has shared his story as a fund manager and how he managed to find growth stocks consistently for his clients.
The book is written with long paragraphs and you will find a 12 to 15-page chapter consisting of paragraph after paragraph without any heading or sub heading and so if you aren’t one of those continuous readers, it can become tough for you to follow in the first pass. I had issues initially but then I managed to get it competed because the content is quite interesting when you get into the details.
This book isn’t only one book of Philip A. Fisher but his son Kenneth Fisher has combined the 3 books of his father into one as three part series.
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