Value Investing

Warren Buffett My Favorite Books #1 – Phil Fisher: Common Stocks Uncommon Profits

“One of the best books on investment” Warren Buffett says. Warren explains how he used the scuttlebug method in this book and how it’s a key lesson for investing. He used it on Apple and American Express. “I give Phil Fisher credit.” Warren Buffett says. “One of the great books.”

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Q1 hedge fund letters, conference, scoops etc, Also read Lear Capital

Warren Buffett My Favorite Books #1 - Common Stocks Uncommon Profits

Warren Buffett Common Stocks Uncommon Profits

Common Stocks and Uncommon Profits and Other Writings by Philip A. Fisher

Transcript

One of the best books on investment was written in nineteen fifty eight I think I read it in around 1960 by Phil Fischer called Common Stocks and Uncommon Profits and all the countries or companies went to jail. But it talked about the importance or the usefulness of what he called the scuttlebutt method. And you know that was something I didn't learn from Graham but every now and then it's turned out to be very useful. Now it doesn't solve everything. I mean there's a whole lot of moisture so you do it with American Express. So will scan and are still doing the Apple you know decades later. In certain cases you actually can learn a lot just by asking a lot of questions and I give Phil Fischer credit. That book goes back a lot of years but but Charlie said that some of the companies he picked as winners forever did sort of peter out. But but the basic idea that you can learn a lot of things just just just by asking. In some cases I mean I used to I mean if I got interested in the coal industry just say to pick pick one out of the air. When I was much younger more energetic if I went and talked to the heads of 10 coal companies and I asked each one of them. Way later into the conversation after they got feeling very felt like talking.

And I would just you know I just said you had to go away for 10 years on a desert island and you had to put all of your family's money into one of your competitors which one would it be and why. And then I'd ask them if they had to shell short one of their competitors for 10 years. All our family money why everybody loves talking about their competitors and if you do that with 10 different companies you'll probably have a better fix on the economics of the coal industry than any one of those individuals has. I mean there's ways of getting at things and sometimes are useful sometimes or not but sometimes that can be very useful and and you know the idea of just learning more all the time. If we'd been offered a chance to go on a gold record right after it was invented we probably would have said to them yeah it would look kind of silly to us. Well unless we drank it now Chartley listen now he's right. I mean we don't we don't foresee things that we haven't got a lot of evidence on. I mean we know when we want to see a lot of them we're talking about a consumer product. We want to see how a consumer product behaves under a lot of different circumstances and then we want to use something. Actually there was a book by Paul Fisher written around 1960 called Common Stocks and Uncommon Profits is one of the great books on investing and it talks about the scuttlebutt method of investing which was quite a ways from what Ben Graham taught me in terms of figures. But it's a very very good book and you can learn a lot you know just by by going out and using some shoe leather.

Now they call them channel checks now or something like that but it's you can get a feel for some products. And then there are others you can. And then sometimes you're wrong but but it is a good technique. It's an important investing technique. I would say that and antenna and Todd do a lot of that and they help some people to help them out on doing it too. Charlie he's done it with Costco. I mean he's he's he is. I mean all the time he is finding new virtues in Costco and. And he's right. Incidentally I mean Costco has an enormous appeal to its constituency. You know they they delight they surprise and delight their customers. And there is nothing like that in business you have delighted customers you're a long way home with them. Well with American Express. This was an interesting situation because Diners Club got there first. I think American Express in a certain sense I mean they did it for a lot of reasons but they went into the credit card business because they were worried about what was going to happen to travelers checks and although travelers checks are still exist in a significant way. But the interesting thing when American Express went into competition with Diners Club and with carte blanche as I remember that Booth also existed at the time was that instead of charging less than Diners Club and going in figuring they were going against the established guy and they'd come in at a lower price. They went and ended up higher prices I remember and the American Express Centurion was on that card.

I've got one that I got in 1964 but they were up it that it had more value than time I mean it it got better representation. And frankly if you were a sales person with somebody and you could pull off that American Express card with a sedentary and you looked like it were J.P. Morgan as you pull off the diner's call battle a bunch of flashy signals you look like a guy that was cutting his check for one month to the next and fellow fellow named Ralph Schneider and Ralph Schneider and Al Bloomingdale developed the Diner's Club and they were very smart about getting there first but they weren't smart about the merchandise that subsequently RC Cola that it did all kinds of codes that came after coke I mean you know you go back to 1886 and come up with something a Jacobs's pharmacy that's incredibly successful you know fairly soon you're going to get lots of imitators. But Coke really is the real thing. And you know you offer me are seeing color and say I'll give it to you at half the price of Coca-Cola. In terms of drinking it I mean this is a product that six in a six and a half ounces sold for a nickel and 9700 you know. And now if you buy it on the weekend and by and large quantity you're not paying that much more. This newspaper was 3 cents in 1942. The amount of enjoyment regal in terms of the real of what you pay for this has gone dramatically down in inflation adjusted money. So it is a bargain product.

You have to look at CDs Candy you know if you live in California and you were you were a teenage boy and you went to your girlfriend's house and you get a box of candy to her mother or father and she kissed you you know you lose price sensitivity at that point. I had some. So we really want products where people feel like you know rather than slapping goes it's and it's an interesting thing I mean in effect we're we're betting on the eco system of Apple products but led by the iPhone. And I see characteristics in that that make me think that it's extraordinary. But I may be wrong and so far we've been I would say we've been right on American Express and Coca-Cola American Express had this huge scandal in 1960 happened in 63. November right around the time Kennedy was shot. And that was really worry about what the company would survive but nobody quit using the car. Nobody quit using the traveler's shacks. And they charge a premium price for their drivers. So there are things you can see around consumer products that sometime can give you a pretty pretty good insight into the future. And then sometimes we make mistakes. I've got nothing to add except that.