Book-review: Common Stocks and Uncommon Profits

I had this classic investing book on my reading list for some time and right after reading through the Kindle extract …

I received and highly recommend you to read this review post from the undercover fund manager and decided to buy it. I finished the book some time ago.

I liked the book for ist very good content (see above review!) and do not strive to repeat it here. Personally, I did not like the many explicit examples focused on share prices at different points in time – I think many examples were much easier to read with less price details.

Superb content. Finding and buying great companies is what many of us aspire to. Unfortunately, I believe for non-professional investors it is quite difficult to evaluate things like management and culture, without having access to management. That of course, does not mean not to try. There are other scuttlebutt methods to learn things about a company. I just want to reproduce some lists from the book to

  • give you an idea of the content
  • if I want to look something up in the future
  • a possible check-list

(The book covers much more than the below topics and gives good explanations for each of them)

WHAT TO LOOK FOR
Point 1. Growth
Point 2. Longer-term growth through new products
Point 3. Research and development efficiency
Point 4. Great sales force
Point 5. Worthwhile profit margin
Point 6. Actions to maintain or improve profit margins
Point 7. Oustanding labor and personnel relations
Point 8. Oustanding executive relations
Point 9. Depth to its management
Developing middle manager, giving them authority, encouragement and taking seriously their suggestions even if, criticism of current management
Point 10. Good cost analysis and accounting controls
Point 11. Oustanding in relation ot its competition
Point 12. Has the company a short-range or long-range outlook for profits (willingness to suffer)
Point 13. Thread of dilution offsetting growth
Point 14. Is management talking straight if difficulties, disappointments occur
Point 15. Management of unquestionable integrity

DONT’s
1.1 Don’t buy into promotional companies.
1.2 Don’t ignore a good stock just because it is traded OTC
1.3 Don’t buy a stock just because you like the tone of its annual report
1.4 Don’t assume that the high P/E is necessarily an indication that further earnings growth has largely been already discounted in the price
1.5 Don’t quibble over eights and quarters

FIVE MORE DONT’s
2.1 Don’t overstress diversification (many companies are diversified themselves)
2.2 Don’t be afraid of buying on a war scare
2.3 Don’t forget your gilbert and sullivan (don’t believe in simplistic metrics, esp. on historic data)
2.4 Don’t fail to consider time as well as price in buying a true growth stock
2.5 Don’t follow the crowd (psychology, sentiment, appraisal of (the same) facts)

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