Author: Philip A. Fisher
|Common Stocks and Uncommon Profits (1957) is a great book for those who are looking to understand how the stock market works. This book won’t teach you how to get rich quickly and escape hard work. However, it will offer valuable lessons on investing, growing, and maintaining your wealth.|
The book Common Stocks and Uncommon Profits teaches us that investing in the stock market is essential to gain broad knowledge, strong self-control, a rational mind, and a conscious effort to reduce the emotional component of your actions.
To master any of these qualities, you must put in a lot of effort and perseverance. The best place to begin is by familiarizing yourself with the money market’s concepts and philosophy.
The basic concepts remain the same, even though it is constantly evolving. Fundamentals determine a company’s intrinsic value. On the other hand, the stock price is determined by how investors view the company. External events, management changes, market corrections, and other factors can cause this to fluctuate from day to day.
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Common Stocks and Uncommon Profits Summary- Key Points
Want to learn about how the stock market works and how they invest? This book is filled with a series of valuable tenets on how to invest, steadily grow, and maintain your wealth for a financially secure life.
Things to remember before investing in stocks
The first thing that the book Common Stocks and Uncommon Profits teaches its reader is that you must perform a comprehensive analysis of 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?
Do your Research
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.
Conduct extensive analysis
Then you will have to narrow it down by conducting extensive analysis. Research their activity profile and industry analysis, competitors, main clients, and how they manage their money. These are all challenging to research, which is why the scuttlebutt method can prove to be highly efficient.
It implies contacting their stakeholders directly and learning information first-hand. 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.
Ensure to consider 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.
“When profit margins of a whole industry rise because of repeated price increases, the indication is not a good one for the long-range investor.”
― Philip A. Fisher
Always buy when the prices are low
Isn’t it true that investment boils down to buying and selling?
Of course, the greatest strategy to enhance your wealth is to purchase a stock at a low price and then sell it when the price rises. Although this may seem self-evident, you’d be shocked how your mindset shifts when it comes to practice.
When money is involved, people are frequently alarmed when their stocks fall in value, and they panic sell to avoid future losses. The stock will almost always rebound, and the price will rise dramatically. As a result, the average investor will want to jump on board and ride the rising trend for fear of missing out.
As a result, the market frequently sees overvalued or undervalued equities. You must always look to the future as a long-term investor.
Learn about the market
Learn that the market is illogical and constantly reacts to short-term events. For example, a well-established company’s profitability may suffer as a result of an R&D expense. Although this will benefit the company in the long run, investors disagree.
You can dramatically boost your fortune if you time your admission well. Then, because market drops are only temporary, hold your position and focus on the long term.
Trade or Invest?
Many people struggle with the decision of whether to trade or invest. It may appear enticing to take advantage of short-term gains or sell as your stock begins to decline. On the other hand, the best investors advise that you always keep your position in the market. It’s best not to time the market because it’s irrational and focused on the short term.
This means that, rather than attempting to buy on dips and sell at all-time highs, which is nearly impossible, you should keep your money invested in firms that you’ve thoroughly investigated. Of course, you can time your entry points and recurring buys if you notice a huge drop in the market for no apparent reason.
Invest in stable and mature companies
The term “fundamental reason” refers to a shift in the company’s fundamentals. Aim to invest in mature companies, i.e., companies that are stable with strong profit margins compared to revenue, good staff happiness, high customer retention, recurrence, and, if necessary, patent ownership and scale distributed systems.
These factors are important in any analysis since they influence an enterprise’s current value and future potential.
Who would I recommend the Common Stocks and Uncommon Profits Summary book to?
Graduates and Entrepreneurs who have a business mind and are obsessed with the idea of making money should read this book to gain more knowledge and understanding of the market, its loss and benefits, and how to play safe.