Friends, like me even you would have a very big problem
About how to choose a good company
And if you have chosen it, then when should you buy
And after buying, when should you sell it
So, today we such a book's review
Which will tell you
How an investor's journey should be
And will answer all these questions
With me, I have Lalit Keshre
CEO and Co-founder of Groww
Today our book review is going to be on 'Common stocks and uncommon profits'
So, Lalit, a few days ago we did a book review on 'Intelligent investor'
So, how is this book different from that one?
So, firstly, both the books are very different among themselves
In 'Intelligent investor' we spoke about value investing
Now, 'Common stocks and uncommon profits'
This book was written by Phil Fisher in 1956
And it's completely different, it's about growth investing and understanding the companies that are investing
So, there is nothing right or wrong, both approaches are different
So, Lalit, the first question that might come into mine and my viewer's mind is what is the crux of this book?
What do we get to learn from this book?
Sure!
So, there are two ways of investing, there are many but one of the two are
It is to buy low,
Sell high.
And the second way is
To buy outstanding companies
And hold them forever
So this book talks about the second way
Identify the right companies
And hold them forever because they can make you rich
Warren Buffett also uses this methodology
So the first question I can think of is how can we choose these companies?
How as a retail investor can I choose a growth company?
Sure!
So, in this, there are many ways but Phil fisher, the author
Calls this the Scuttlebutt method
What happens in Scuttlebutt method is that
You know the company in a very firsthand way
For example, you got to know about a company called Asian Paints
So you will find out about
What do their employees do?
What is its production system? Where does it source products from?
Who buys their products, you speak to their customers about whether their customers like the products
In one way, imagine that you have buy the entire business
So what all will you think about in that business?
You should know all its firsthand information
This is different from researching that you're looking on Google
That whatever information you get there you're investing on that basis
But if you ever want you find an outstanding company
Then you will have to find companies
You have to understand companies in and out
And that is the firsthand interaction that he talks about
So, Lalit, as you told us that if you want to invest in a company then you have to act like an owner
For example, if I think about investing in Maruti Suzuki
Then I have to see as an owner how the employees of that company act
I have to meet them and find out what they think
How do all the other customers think?
Apart from this, how do their distributors act?
And when I understand it as a whole
Only then should I invest in that company
And there is another important thing here
If you're investing in the company then you should know about the industry as well
That in the car industry
It is possible that EV's were introduced, Electric Vehicles, so what will the company do?
So you have think that you're investing in the company forever and you will never sell it
So, what are the market situations in which they can face a problem
So, until now what you have told me is I chose a good company
And I thought about investing in that company as well
Now a big question that comes to mind and many retail investors' mind
Is when should I buy it, is it today, tomorrow, day after, how can I decide this?
So, it is that the stock market
Is a very interesting place where the price changes everyday
The value of the company doesn't change everyday
So the stock market is very moody, Mr. Market like we spoke about in the previous book review
So it's very moody, one day it will decide that all the companies are very cheap
For example, one day Maruti Suzuki will be very cheap and another day it will be very expensive
An important thing here is that the market gives you a lot of opportunites
You get tons of opportunities if you have patience
So, there will be a time when,
This is based on the book
What we're talking about, that sometimes
A company faces problems, temporary problems
And at that time the market feels that they won't perform well
For example, like we discussed the last time about Nestle, Nestle is a very
Solid company, its stock price is quite expensive
But there were some temporary problems with Maggi
And the price fell
And Phil Fisher says that you should not leave such chances
And what happens at this time is that crowd gets afraid, the price of the stock falls down
And at that time we should have the courage to buy that stock
Now I chose an outstanding company, after that I bought it
Now another question comes into the picture, that when should I sell it?
Very good!
That is a very good question, so again what Phil Fisher said
What is mentioned in this book is that, it is best
You're very lucky that you have identified an outstanding company
And you've bought at a good price, which was not very expensive
Now, ideally you should never sell it
But
Phil Fisher mentions there are three conditions when you should sell the company
Number one
If what you thought and assumed
What you thought and bought the company
And your understanding was wrong
Then you should sell it, for example I, myself had thought and bought a company
But there was some fraud in the company, so I immediately sold it
The second example is
The second reason when you should sell is
That the industry situation has changed
You must've assumed something and invested in the company but suddenly, the industry situation has changed
There are many examples for this, like there was a very nice company called Blockbuster in the US
Netflix came about and the entire industry changed
Then you should sell the company
At that time
Third is
If you can find a better opportunity
That you found a company better than the outstanding company and you don't have that much money to deploy
Then you can sell that and invest in a better opportunity
Lalit, normally in investing, two strategies are considered to be very famous
First, value investing
Second, investing in growth stocks
Can you tell us the difference between the two
Value investing and growth investing are two sides of the same coin
Which means that you can consider a company a value company or a growth company
But if you look at it traditionally in a bookish manner, then value investing
Was looked at on the basis of numbers, that that company's
Past experience like profit loss and
Balance sheet etc. the net worth, intrinsic value like we spoke about in 'Intelligent investor'
What is the value of that and if you're buying for something lower than that, buy low and sell high like I said
And when it becomes overvalued then you sell it
So that is the first part
Second is, the growth that we are talking about
It's not necessary that you're buying it cheap, you're buying it at a fair price
But you're not buying into any company, you're buying into outstanding companies, the best companies that
You can figure out and understand
And then you're going with them and so on
The best thing is to join both strategies, like Warren Buffett
Warren Buffett was the student of Ben Graham
So, he came from the value investing camp
But when he came into Charlie Munger's contact and started working with him,
Then he started to understand the business more and more
And investing in outstanding businesses
So, when both of these combine, you get the magic and you make more money
So, as Lalit told us
It is best for retail investors like you and I
That you should choose value investing and growth stocks and combine them and maybe we can get the best returns
It is very well written in this book about how an investor's journey should be
How a good company can be chosen
When you should buy it and when you should sell it
So Lalit explained everything very well
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Happy investing!
Thank you, happy investing!