Book Review: Common Stocks and Uncommon Profits

Around 4 years ago, while reading about investment philosophy of
Buffett, I chanced upon a quote from him saying that his style was 85%
Graham and 15% Fisher. I had been a avid reader of Graham by then but
I was hearing about Fisher for the first time. Couple of searches
later I got the details about this book called 'Common Stocks and
Uncommon Profits'. The book came highly recommended by famous investors.

When I read it I wasn't sure whether what Fisher said was at all
possible. He talks about the growth stocks where you buy and hold for
years seeing them grow 10 time..20 times. By that time I was into
buying undervalued companies at low price and selling them as soon as
they reverted to normal valuations. I liked his approach of analyzing
the company's business by meeting with customers, employees ,
suppliers rather than focusing on vague and volatile numbers from
annual reports. But I wasn't sure whether a individual investor can
achieve this.

On the second reading 4 year later, I found that my experience of last
4 years really back what Fisher had to say. I had realized that
investing in good businesses and holding for long term is a better
approach than buying stocks of troubled companies at dirt cheap
prices. The main reason for this change was that my earlier focus on
accounting numbers like EPS, P/E, ROE was proved wrong too many times.
I had bought many stocks just because their financials looked great
without bothering to know more about the company. The results of these
decisions were disastorous. On the other hand many of my investments
grew to 15 to 20 times their original value. When I did a detailed
study then I realized that al the successful decisions were those
where I had bought good businesses at attractive prices. I realized
that a good business ensures that the financials will look attractive
in long run but the financial figures which look attractive on first
glance do imply a good business.

I would rate this book the second most useful for the investors(the
first of course is 'Intelligent Investor' by Graham). The book
contains lot of useful tips about making your own investment strategy.
It exposes many myths small investors generally hold. It reminds the
investors that they are part owners of a business not a buyer of
lottery tickets. If one thinks that by number crunching he can know
about the characteristics and prospects of business, this book will
bring him closer to the hard reality.

Overall this book provides a very good reading with interesting real
life examples. Being free of investment jargons this book is easily
digestible to those who are new comers to the field of investing. I
recommend this book to all the investors.