Business Quality
Common Stocks and Uncommon Profits
Philip Fisher on doing your own homework by simply asking around.
Call a competitor and ask what they think of the company. Call a supplier. Call a customer who left. Philip Fisher called this scuttlebutt, and it is still the most practical idea in Common Stocks and Uncommon Profits.
The financial statements tell you what happened. The people around the company tell you why.
Judging management by watching, not by listening
Fisher's second contribution is a method for evaluating management that has nothing to do with what they say on an earnings call. Watch how they handle a bad quarter. Watch whether they are honest about a mistake or spin it. Watch how they treat people below them. That behavior, observed over time, tells you more than any interview, because the stock market is full of people who know the price of everything and the value of nothing, and management's real character only shows up under pressure.
A few outstanding companies beat a lot of good ones
Fisher's other lasting argument is against diversification for its own sake. He would rather own a handful of companies he understood completely than twenty he understood partially. That only works if the homework, the scuttlebutt, actually gets done first. Do it right at the purchase, and the time to sell is almost never, because most of the reasons to sell later are just a reaction to noise.
There is a quieter payoff to all of this too. Conservative investors, the ones who did the work up front and are not constantly second-guessing the position, sleep well.
“The stock market is filled with individuals who know the price of everything, but the value of nothing.”
“If the job has been correctly done when a common stock is purchased, the time to sell it is almost never.”
“Conservative investors sleep well.”