The Investment Secrets in Common Stocks and Uncommon Profits

In his book, Fisher laid out fifteen things that a successful investor should look for in his or her common stock investments. Here’s a rundown of what they are. (Do yourself a favor. Run out to your local store or navigate to your favorite online book retailer and pick up a copy of Common Stocks and Uncommon Profits – this basic summary of the book can’t possibly do justice to all of the excellent information in its pages.)

1. Does the company have products or services with sufficient market potential to make possible a sizeable increase in sales for at least several years?
2. Does the management have a determination to continue to develop products or processes that will still further increase total sales potential when the growth potential of currently attractive product lines have largely been exploited?
3. How effective are the company’s research and development efforts in relation to its size?
4. Does the company have an above-average sales organization?
5. Does the company have a worthwhile profit margin?
6. What is the company doing to maintain or improve profit margins?
7. Does the company have outstanding labor and personnel relations?
8. Does the company have outstanding executive relations?
9. Does the company have depth to its management?
10. How good are the company’s cost analysis and accounting controls?
11. Are there other aspects of the business somewhat peculiar to the industry involved that will give the investor important clues as to how the company will be in relation to its competition?
12. Does the company have a short-range or long-range outlook in regard to profits?
13. In the foreseeable future, will the growth of the company require sufficient financing so that the large number of shares then outstanding will largely cancel existing shareholders’ benefit from this anticipated growth?
14. Does the management talk freely to investors about its affairs when things are going well and “clam up” when troubles or disappointments occur?
15. Does the company have a management of unquestioned integrity?

Fisher also had five “don’t” rules for investors, which were:

1. Don’t buy into promotional companies
2. Don’t ignore a good stock just because it is traded over-the-counter
3. Don’t buy a stock just because you like the tone of its annual report.
4. Don’t assume that the high price at which a stock may be selling in relation to its earnings is necessarily an indication that further growth in those earnings has largely been already discounted in the price?
5. Don’t quibble over eighths and quarters