Common Stocks and Uncommon Profits
Clues Of The Past
This chapter introduces us to the ambition of a good investment in a potential company. Most people are eager to earn some extra income by investing in companies with minimal risks. Philip Fisher highlights the downside of the most common strategies of investment and shares his insight on why investment opportunities have increased over the years.
The most sensible approach is to study the history of the stock market and invest in common stocks that have given the most profitable returns in the past.
Philip Fisher points to an approach of “betting on the business cycle”.
During an unstable banking system, it was more profitable for investors to find a company and stick with it.
Companies which had the potential to give huge returns were available for years at prices that could have provided far better profits than buying shares in a panic during a business downturn. Philip Fisher opines that the stocks which can generate hefty profits in the long run still exist today, and the chances of finding such companies are even higher.
Chances of finding good stocks have increased because there has been a drastic change in the corporate management structure of most companies.
The author further explains that recently companies have started hiring people according to their skills and experience, whereas in earlier days, family-owned companies were run by their own family members irrespective of their capabilities and qualities. A company that has too many family members involved in its day-to-day operations shouldn’t be considered for investing.
Modern corporate management focuses on introducing new ideas and changes and tends to look for improvements.
Companies have also introduced the concept of R&D, which allows innovations at a faster rate. This increases a company’s competitive power in the market, which is exactly why it can be better for investors.
Since 1932, the Federal Government has decided to help companies fight times of recession by lowering taxes. Support from the Federal Government to the companies can increase potential investment opportunities.
In a recession, inflation will rise, and interest rates will go down, which will make a bond cheaper.
It is always better to identify good companies and buy them now rather than buying stocks in times of depression and selling them in the times of boom.