Common Stocks and Uncommon Profits: The Investment Classic That Still Matters 📈

The Scuttlebutt Method 🔍

Fisher's most famous contribution to investing is what he called the "scuttlebutt" method—and no, that's not a typo or some fancy financial term. It literally means gathering gossip and inside information through informal channels.

But here's the genius part: Fisher wasn't talking about illegal insider trading. He meant doing deep, qualitative research by talking to people who actually know the company.

Talk to the company's competitors. What do they think of the company's products and management?

Talk to suppliers. Are they reliable? Do they pay on time? Are they growing?

Talk to customers. Do they love the product? Would they switch to a competitor?

Talk to former employees. What's the culture like? Why did they leave?

Talk to industry experts, consultants, trade association executives—anyone who has a view into how the company actually operates.

This was revolutionary in the 1950s when most investors just looked at financial statements and stock charts. Fisher was saying: the numbers tell you what happened, but talking to people tells you what's happening and what might happen next.

The beauty of this approach is that it's still completely valid today. Maybe even more so, because while everyone has access to the same financial data, few investors do the deep qualitative work.

The Fifteen Points 📋

Fisher laid out fifteen characteristics to look for when evaluating a potential investment. These aren't nice-to-haves—they're essential filters. Miss too many of these, and Fisher would say it's not worth your money, regardless of how cheap the stock looks.

Let's break down the key ones:

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?

Fisher wanted growth potential, not mature companies milking the same products forever. He was looking for companies that could double, triple, or 10x their sales because the market was there for the taking.

2. Does the management have a determination to continue to develop products or processes that will still further increase total sales when growth potential of currently attractive product lines has largely been exploited?

One hit wonder companies don't cut it. Fisher wanted management that was constantly innovating, always working on the next thing before the current thing peaked.

3. How effective are the company's research and development efforts in relation to its size?

It's not just about spending money on R&D—it's about getting results. Some companies throw money at research and get nothing. Others are incredibly efficient at turning research into profitable products.

4. Does the company have an above-average sales organization?

You can have the best product in the world, but if you can't sell it effectively, you're toast. Fisher looked for companies with strong, motivated sales teams that could actually convert interest into revenue.

5. Does the company have a worthwhile profit margin?

Low margins mean you're vulnerable to any cost increase or pricing pressure. High margins give you room to breathe, invest, and weather storms.

6. What is the company doing to maintain or improve profit margins?

It's not enough to have good margins now—what's the plan to keep them or make them better? Are they improving efficiency? Building brand power? Creating switching costs?

7. Does the company have outstanding labor and personnel relations?

Happy, motivated employees are more productive. High turnover is expensive. Bad labor relations lead to strikes, low morale, and poor execution. Fisher wanted companies where people actually wanted to work.

8. Does the company have outstanding executive relations?

If the C-suite is fighting among themselves or if middle management feels disconnected from leadership, things won't go well. Fisher looked for cohesive, aligned management teams.

9. Does the company have depth in management?

What happens if the CEO gets hit by a bus? If the answer is "the company falls apart," that's a problem. Great companies have strong management depth—talented people at multiple levels who can step up.

10. How good are the company's cost analysis and accounting controls?

This sounds boring, but it's crucial. Does management actually know what things cost? Can they identify inefficiencies? Do they have the systems to control costs without sacrificing quality?

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 may be in relation to its competition?

Every industry has its own key metrics. For retail, it might be same-store sales growth. For software, customer acquisition cost and lifetime value. Fisher wanted investors to understand what matters in that specific industry.

12. Does the company have a short-range or long-range outlook in regard to profits?

Fisher had no patience for companies that sacrificed long-term value to boost quarterly earnings. He wanted management thinking in years and decades, not quarters.

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?

Translation: Is the company going to have to issue so many new shares to fund growth that your ownership gets diluted to meaninglessness?

14. Does management talk freely to investors about its affairs when things are going well but "clam up" when troubles and disappointments occur?

Transparency matters. Companies that only communicate when things are great are red flags. Fisher wanted management that was honest about challenges, not just cheerleaders when times were good.

15. Does the company have a management of unquestionable integrity?

This is non-negotiable. All the growth potential and profit margins in the world mean nothing if management is cooking the books, lying to shareholders, or enriching themselves at your expense.

When to Buy 🎯

Fisher's philosophy on when to buy was surprisingly simple: when you find a company that meets his criteria, buy it. Don't try to time the market. Don't wait for a pullback that might never come.

He believed that if you've done your homework and found a truly outstanding company, minor differences in purchase price won't matter much over the long term. The difference between buying at $50 and $55 is irrelevant if the stock goes to $500.

This doesn't mean overpay wildly. But it means don't let perfect be the enemy of good. If you're convinced you've found a great company at a reasonable price, buy it and move on.

The real money is made in finding and holding great companies, not in timing your entry perfectly.

When to Sell 💸

Here's where Fisher gets really interesting. He believed you should almost never sell.

Seriously. If you've done your homework and bought a truly outstanding company, why would you sell?

He gave only three reasons to sell:

1. You made a mistake in your analysis. The company isn't what you thought it was. The growth potential isn't there. Management is worse than you believed. Fair enough—admit your error and move on.

2. The company has fundamentally changed. Management has changed for the worse. The competitive advantage is eroding. The growth runway has ended. The business is no longer outstanding. Then yes, sell.

3. You found something significantly better. Not just slightly better—significantly better. Because selling creates transaction costs and taxes, and you need a compelling reason to give up a great company for a merely good one.

Notice what's not on this list: "The stock went up a lot." "The market seems overvalued." "I want to take profits." "The stock hit my price target."

Fisher thought selling great companies just because they'd gone up was one of the biggest mistakes investors make. If the company is still outstanding and still growing, why would you exit? Let your winners run.

The Power of Concentration 🎲

Fisher was not a fan of diversification for its own sake. He believed that if you've done deep research on a company and truly understand it, there's no reason to own 50 or 100 stocks.

His approach was to own a relatively concentrated portfolio of exceptional companies that you know inside and out. Maybe 10-20 positions at most, possibly fewer.

This flies in the face of modern portfolio theory and the "diversify, diversify, diversify" mantra. But Fisher's logic was simple: if you own 100 stocks, you can't possibly know all of them well. You're forced to own mediocre companies alongside the great ones. And the mediocre ones will drag down your returns.

Better to own 10 exceptional companies you truly understand than 100 companies you superficially researched.

Of course, this requires doing the work. If you're not willing to do deep research, maybe you should own an index fund. But if you are willing, concentration can be powerful.

The Long-Term Mindset ⏰

Fisher's time horizon was measured in decades, not quarters or years. He bought companies he expected to hold for 10, 20, or 30 years.

This is almost unheard of in today's market where the average holding period is measured in months. But Fisher believed that real wealth came from compounding—letting great companies grow for years and years.

He was fond of pointing out that if you'd bought certain outstanding companies and just held them through wars, recessions, market crashes, and all sorts of chaos, you'd have done incredibly well.

The key was finding companies that could compound growth over very long periods. Not companies that would have a good year or two, but companies with durable competitive advantages and long growth runways.

Growth at a Reasonable Price 📊

Fisher is often called a "growth investor," but he wasn't reckless about valuation. He wanted growth, but he wanted to pay a reasonable price for it.

He distinguished between companies that were temporarily expensive because of market enthusiasm versus companies that were fundamentally too expensive relative to their growth prospects.

A company trading at 30x earnings might be cheap if it's growing earnings at 30% annually with a long runway ahead. A company at 15x earnings might be expensive if growth has stalled.

Fisher cared more about the quality of the business and its growth trajectory than about hitting some arbitrary P/E ratio target.

This put him somewhere between the deep value investors (who just want cheap stocks) and the growth-at-any-price investors (who don't care about valuation). He wanted outstanding companies at prices that made sense given their growth prospects.

The Management Question 👔

If there's one theme that runs through the entire book, it's the paramount importance of management.

Fisher believed that management quality was the single biggest determinant of whether a company would be a great investment. You can have a great product, a great market, great financials—but if management is mediocre or corrupt, you're going to have a bad time.

This is why the scuttlebutt method focuses so much on understanding management. Not just listening to what they say in earnings calls, but really understanding:

• How do they treat employees?
• How do they handle setbacks?
• Are they candid with shareholders?
• Do they think long-term?
• Are they innovative?
• Are they trustworthy?

Finding answers to these questions requires work. You can't get it from a 10-K filing. You have to talk to people, observe actions over time, and develop informed judgment.

Still Relevant Today? ✨

Here's the remarkable thing: Fisher's principles are arguably more relevant now than when he wrote them.

In an age where everyone has access to the same financial data in real-time, the competitive advantage in investing has shifted to qualitative analysis—exactly what Fisher advocated.

The scuttlebutt method is easier than ever with LinkedIn, Glassdoor, online forums, and the ability to reach people globally. Yet few investors actually do it.

The focus on long-term quality over short-term trading is more valuable than ever in markets dominated by algorithms and short-term thinking.

The emphasis on management quality matters even more in complex, fast-changing industries where leadership makes or breaks companies.

The Fisher Legacy 🏆

Warren Buffett credits Fisher with teaching him to look beyond just buying cheap stocks (which Buffett learned from Benjamin Graham) and to focus on quality and growth.

Buffett's famous quote: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price" is pure Fisher influence.

The whole concept of identifying "moats" and competitive advantages that Buffett talks about? That's Fisher's emphasis on sustainable growth and barriers to competition.

Many of the best investors of the last 50 years—from Tom Russo to Terry Smith to Nick Sleep—have been Fisher disciples, emphasizing quality, management, and long-term holding periods.

The Work Required 💪

Here's what Fisher's method demands: work. Real, deep, time-consuming work.

You can't apply the scuttlebutt method from your couch reading 10-Ks. You have to talk to people. You have to understand industries. You have to think critically about management and competitive dynamics.

You have to be willing to do research that takes weeks or months, not minutes.

You have to be comfortable with concentration, which means being comfortable with volatility.

You have to have the patience to hold for years, even when the stock isn't doing anything or when everyone else is chasing hot new trends.

Most people aren't willing to do this work. Which is exactly why it works for those who are.

The Bottom Line

"Common Stocks and Uncommon Profits" isn't going to give you stock picks or tell you when to buy or sell based on chart patterns.

What it gives you is a framework for thinking about businesses as an owner, not as a trader. For focusing on what matters—the quality of the business and its management—rather than what's easy to measure.

Fisher's message is simple but demanding: find exceptional companies run by exceptional people, buy them at reasonable prices, and hold them for decades.

Do this well, and you might just achieve uncommon profits.

But you've got to be willing to do uncommon work.

In a world of quarterly earnings obsession and algorithmic trading, Fisher's patient, research-intensive approach feels almost radical. Maybe that's exactly why it still works. 📚