The Three Most Valuable Lessons from “Common Stocks and Uncommon Profits”
I bet making “uncommon” profits out of common stocks market is the dream of every investor. If you share the same dream, the book “Common Stocks and Uncommon Profits” written by Philip A. Fisher is the perfect book for you!
You might not know Fisher but you must have heard of Warren Buffett. The legendary investor has repeatedly told the public that his investment philosophy is 85% Benjamin Graham and 15% Philip Fisher.
So, let's get to learn a few valuable lessons from the investing master that “contributed“ 15% of Buffett 70.8 Billion USD business kingdom.
Lesson #1 – Look for Dips in a Stock’s Price
Look for dips in a stock’s price to get in cheaply, so you can ride high when it grows in the future.
Image source: ThoughtCo
Even a newbie in the market knows that the easiest way investor makes money is to buy at a cheap price and sell when the price rise. What differentiates masters from losers?
“Look for the best companies in a difficult sector!” Fisher suggested.
Just for your reference, stocks prices of F&B companies or offline retail chains might plummet due to COVID-19. Yet, being the top companies in the sector owning unique competitive advantages like a credible brand name, effective supply chain, or low production cost. They might soon recover from the hard times and rebound quickly.
If you are able to buy the stocks at the dip, then you are likely to earn a fat margin when they bounce back.
Lesson #2 – How to look for a good portfolio manager？
Well, I know, most of us have our full-time job so you won’t be there sitting all day long in front of your computer monitoring all your transactions. Therefore, it is more ideal for you to choose the right portfolio manager to manage your valuable asset.
“Find someone who shares the same philosophy with you and have integrity.” the wise old man said.
Image source: Yahoo Finance
The integrity of the person can be demonstrated through his reputation in the industry. What about investment philosophy? I bet most of you will just be searching for the person with the best figures. However, Fisher reminds us to also be aware of their risk-averse tendencies in investing. If you consider yourself as a conservative investor, you definitely don't want someone who attaches too much weight on leverage despite the astonishing return rate!
Lesson #3 – Stocks with high dividend payment might not be a good investment
The last lesson is about dividend payment. A lot of investors believe that stocks with a high dividend payment would be a great investment as the dividend can serve as a nice passive income.
Yet, high dividend payment may indeed be a one-off offer especially when the company is selling out its valuable assets to “create” a nicer financial statement. Moreover, if the pay-off rate (ratio of dividend to profit earned) is too high, meaning the company only retains a very little amount of profit for its future development. This might not be the kind of fast-growing company that most investors are looking for.
While the technical details might be too complicated for kids at 6-18, it's never too late on educating them about the wisdom behind. For example, when your children are looking for life-long friendships, integrity remains to be a fundamental factor.
If you wish to know more about information related to financial investment, please stay tuned to our mellow blog posts.