If you’re anything like me, you’ve never really delved into the tangled mess that is the stock market – and you might consider yourself lucky. If you find yourself curious though, like I did, about how all of those scrolling ticker symbols and numbers on CSNBC make people so much money year after year, you will need a starting point for your education. You will find that there have literally been thousands of books written about how to invest, where to invest, and who to ask about investing, but most of them say essentially the same thing. Thus far, I have read several books about financial markets, how to pick stocks, and how to make your money work for you. I have found that Phillip Fisher’s Common Stocks, Uncommon Profits, is one of the best basic guides on stock picking.
The book is older than what you might expect or be used to, but there are several editions that have been released more recently, and it seems like they’ve done a nice job in keeping with the times. Anyway, I quickly found that the principles of making solid portfolio decisions do not change much over time. At its core, Fisher’s book is a guide to value investing. That is, picking stocks that can be bought at a reasonable price, and which can double, triple, or more than quadruple in value over time. These are value stocks; stocks that can show lifetime returns of over 800% – these are the stocks that you want in your portfolio.
Fisher takes his reader from start to finish on the process of identifying, analyzing, purchasing, maintaining, and selling high quality stocks, and as you might expect, there aren’t really any shortcuts to take along the way. Fisher does reveal something that might give some of you hope – creating a strong portfolio of stocks is not some mysterious, elusive, quantitative process that only a select few can understand. Selecting quality stocks is simply research. There are a fair number of financial ratios and numbers that need to be examined, but nothing that someone with a computer and the internet couldn’t figure out quickly. The bulk of picking value stocks comes from talking to people in a particular industry and coming to understand the roles that different firms play in that industry. Once you understand how firms interact with one another, and do a brief financial analysis, choosing the most attractive stocks is not all that hard. Use this information to build your portfolio, and if you did your homework properly (there is not much luck involved), you will see real financial results.
I encourage you, even if you don’t read this book, to try to learn the basics of the stock market and how it affects our economy. If you do wish to take the plunge into the world of stocks and bonds, though, I can recommend no one better than Phillip Fisher to guide you.