Common Stocks and Uncommon Profits and Other Writings

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What to Buy
The Fifteen Points to Look for in a Common Stock
W
hat are these matters about which the investor should learn if he 
is to obtain the type of investment which in a few years might 
show him a gain of several hundred per cent, or over a longer 
period of time might show a correspondingly greater increase? In other 
words, what attributes should a company have to give it the greatest 
likelihood of attaining this kind of results for its shareholders? 
There are fifteen points with which I believe the investor should con- 
cern himself. A company could well be an investment bonanza if it failed 
fully to qualify on a very few of them. I do not think it could come up to 
my definition of a worthwhile investment if it failed to qualify on many.
Some of these points are matters of company policy; others deal with how 
efficiently this policy is carried out. Some of these points concern matters 
which should largely be determined from information obtained from
sources outside the company being studied, while others are best solved by 
direct inquiry from company personnel. These fifteen points are: 
 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? 
It is by no means impossible to make a fair one-time profit from com- 
panies with a stationary or even a declining sales curve. Operating 

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4 8
 
economies resulting from better control of costs can at times create 
enough improvement in net income to produce an increase in the mar-
ket price of a company’s shares. This sort of one-time profit is eagerly 
sought by many speculators and bargain hunters. It does not offer the 
degree of opportunity, however, that should interest those desiring to 
make the greatest possible gains from their investment funds. 
Neither does another type of situation which sometimes offers a 
considerably larger degree of profit. Such a situation occurs when a 
changed condition opens up a large increase in sales for a period of a very 
few years, after which sales stop growing. A large-scale example of this
is what happened to the many radio set manufacturers with the com- 
mercial development of television. A huge increase in sales occurred 
for several years. Now that nearly 90 per cent of United States homes 
that are wired for electricity have television sets, the sales curve is 
again static. In the case of a great many companies in the industry, a 
large profit was made by those who bought early enough. Then as the
sales curve leveled out, so did the attractiveness of many of these
stocks. 
Not even the most outstanding growth companies need necessar- 
ily be expected to show sales for every single year larger than those of
the year before. In another chapter I will attempt to show why the
normal intricacies of commercial research and the problems of mar- 
keting new products tend to cause such sales increases to come in an 
irregular series of uneven spurts rather than in a smooth year-by-year 
progression. The vagaries of the business cycle will also have a major 
influence on year-to-year comparisons. Therefore growth should not
be judged on an annual basis but, say, by taking units of several years 
each. Certain companies give promise of greater than normal growth 
not only for the next several-year period, but also for a considerable 
time beyond that. 
Those companies which decade by decade have consistently shown 
spectacular growth might be divided into two groups. For lack of bet-
ter terms I will call one group those that happen to be both “fortunate 
and able” and the other group those that are “fortunate because they are 
able.” A high order of management ability is a must for both groups. No 
company grows for a long period of years just because it is lucky. It must 
have and continue to keep a high order of business skill, otherwise it will 
not be able to capitalize on its good fortune and to defend its compet- 
itive position from the inroads of others. 

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