If you haven't read Phillip Fisher's Common Stocks and Uncommon Profits, I'd recommed picking it up. He's a legendary investor who brought clarity and a new way of thinking to investing. Also, his son is Ken Fisher, one of the investments voices I pay most attention to today. Here are his 15 points to look for in a common stock, and 5 don'ts for investors. Keep these in mind as you look for stocks in this market.
15 Points to Look for in a Common Stock
1. Does the company have products or services with sufficient market potential to make possible a sizable 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 potentials when the growth potentials 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, which will give the investor important clues as to how outstanding 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 equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders' benefit from this anticipated growth?
14. Does the management talk freely to investors about its affairs when things are going well but "clam up" when troubles or disappointments occur?
15. Does the company have a management of unquestionable integrity?
Five Don'ts for Investors
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.