Originally published at: https://blog.12min.com/one-up-on-wall-street-pdf-peter-lynch/
How to Use What You Already Know to Make Money in the Market
“Leave it to the pros” is the one advice Peter Lynch will never give you when it comes to investing.
In his dictionary, “professional investor” is an oxymoron.
And a well-prepared amateur investor is next decade’s millionaire.
So, what are you waiting for?
This book’s stocks are rising by the minute.
Learn immediately how to always be “One Up on Wall Street.”
Who Should Read "One Up on Wall Street"? And Why?Peter Lynch, Warren Buffett, and Charlie Munger are widely revered as possibly the best investors in history, nothing short of titans in the field, wizards with investment records which comfortably put them in a league of their own.
And it’s no coincidence that all three of them are proponents of the same philosophy.
Namely, Benjamin Graham’s value investing, which is based on the premise that your only interest should be undervalued companies with inherent worth, which, in turn, you can only know if you research them well.
In other words – as the subtitle of this book says – use what you already know to make money in the market, not the market fluctuations.
This book should be all but a gospel for those who want to learn how.
About Peter LynchPeter Lynch is an American mutual fund manager, investor, and philanthropist.
He graduated from Boston College and earned an MBA from Wharton. In the meantime, Lynch got a job as an intern with Fidelity Investments, mainly because he was caddying for D. George Sullivan, Fidelity’s President.
In 1977, he was named the head of the Magellan Fund which was worth $18 million in assets. During his 13-year tenure, Lynch consistently more than doubled the S&P 500 market index, averaging almost 30% annual return.
By the time he resigned in 1990, Magellan Fund had grown to more than $14 billion in assets, becoming perhaps the world’s best-known actively managed mutual fund.
Lynch has so far published three books, all co-written with the freelance financial writer, John Rothchild: “One Up on Wall Street,” “Beating the Street,” and “Learn to Earn.”
"One Up on Wall Street PDF Summary"Whether it’s a 508-point day or a 108-point day," writes Peter Lynch in the "Prologue" to "One Up on Wall Street," in the end, superior companies will succeed, and mediocre companies will fail, and investors in each will be rewarded accordingly.
The point being:
The manic-depressive Mr. Market isn’t your friend and trying to earn your money by attempting to predict his behavior is one of the worst things you can do.
But, wait a second, you say! If so, what about all those people working on Wall Street whose job is basically that: predicting the market?
What about Lynch himself and all the other MBAs from Wharton?
Is Lynch seriously saying that their degrees and the millions of dollars they are currently earning are just a fluff and a façade?
If you are expecting some twist at this point, you’re about to be disappointed.
Lynch’s answer to your question is a resounding “yes”:
Stop listening to professionals! Twenty years in this business convinces me that any normal person using the customary three percent of the brain can pick stocks just as well, if not better, than the average Wall Street expert."Nothing has occurred to shake my conviction that the typical amateur has advantages over the typical professional fund jockey" – he adds in the introduction to the millennium edition.
In fact, in Lynch’s opinion, “professional investing” is an oxymoron on par with phrases such as “deafening silence” and “military intelligence.”
In other words – there’s no such thing.
So, when E.F. Hutton talks, contrary to the popular dictum, everybody is not supposed to be listening, but, instead, everybody ought to be trying to fall asleep:
When it comes to predicting the market, the important skill here is not listening, it’s snoring. The trick is not to learn to trust your gut feelings, but rather to discipline yourself to ignore them.What does this mean in practice?
Well, it means that you should never invest in any company before you’ve done your homework on the said company.
This means: research its earnings prospects, find out everything you can about its financial condition and competitive position, spend some time studying its vision and plans for expansion, and so on and so forth.
Because only by doing this you can be sure that you’re not buying a lottery ticket, but a company.
As Warren Buffett says, in essence, buying a stock is not much different from buying a whole company, and we’re pretty sure that you would think twice before buying a company judging solely on the current market trends.
Speaking of which –
In Peter Lynch’s typology, there are six different types of companies – learn to differentiate them, so that you should know when and how much to invest, in addition to what kind of return you can expect and in how many years you should expect it.
Slow growers are usually “large and aging companies” which “are expected to grow slightly faster than the gross national product.”
Stalwarts grow a bit faster, but, even so, you can’t expect them to be agile. Since, after all, these are the heavyweights such as “Coca-Cola, Bristol-Myers, Procter and Gamble, the Bell telephone sisters, Hershey’s, Ralston Purina, and Colgate-Palmolive.”
The fast growers are “small, aggressive new enterprises that grow at 20 to 25 percent a year.” Obviously, these are among Lynch’s favorite investments. “If you choose wisely,” writes Lynch, “this is the land of the 10-to 40-baggers, and even the 200-baggers.”
Cyclicals usually follow a rise-fall-rise pattern, rising and falling in a more predictable manner than the rest of the companies. “The autos and the airlines, the tire companies, steel companies, and chemical companies are all cyclicals.”
Turnarounds are “no growers” which, from time to time, are capable of rebounding. Since they are all but Chapter 11 signoffs before that, turnarounds are some of the most exciting companies to look out for. Lynch made a lot of money from Chrysler.
Asset plays are companies which have been overlooked by Wall Street – Lynch says that Wall Street overlooks asset plays constantly – even though they sit on assets you know have some inherent value.
This categorization is not final, notes Lynch. Companies constantly switch between categories, and your job is to research when and how.
So that you know how much to invest.
Key Lessons from "One Up on Wall Street"1. Determining the Company You’ll Invest In: The 6 Types of Companies 2. The 13 Traits of a Company Which Make It an Attractive Investment 3. Signals to Tell You Which Companies to Shun
Determining the Company You’ll Invest In: The 6 Types of CompaniesBefore investing in a company, be sure to discover its why and its story.
Afterward, determine its category.
It can belong to one of these six: slow growers, fast growers, stalwarts, cyclicals, turnarounds, and asset plays.
Turnarounds and fast growers offer the best opportunities but be wary of miscuing your investment on the cyclicals.
The 13 Traits of a Company Which Make It an Attractive InvestmentOnce you realize a company has a product which guarantees it’s going to be a success even if an idiot runs it, then you’ve found your investment.
However, there are 13 additional traits which may further direct your decision.
These are all good signs:
#1. It sounds dull - or, even better, ridiculous.
#2. It does something dull.
#3. It does something disagreeable.
#4. It’s a spinoff.
#5. The institutions don’t own it, and the analysts don’t follow it.
#6. There’s something depressing about it.
#7. The rumors abound: it’s involved with toxic waste and/or the Mafia.
#8. It’s a no-growth industry.
#9. It’s got a niche.
#10. People have to keep buying it.
#11. It’s a user of technology.
#12. The insiders are buyers.
#13. The company is buying back shares.
Signals to Tell You Which Companies to ShunJust as there are signals to tell you which companies are good investments, there are signals which may suggest the opposite.
For example, it’s never a good idea to buy “the next big something” or to invest money in “the stock with the exciting name.”
In addition, don’t buy stocks which people lower their voices to share with you. These are “the whisper stocks,” “the whiz-bang stories,” the long shots.
Beware middleman companies as well, i.e., companies which cell 25 to 50 percent of its products to a single customer.
Finally, avoid diworseifications, which is a too good a word to require further explanation.
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"One Up on Wall Street Quotes"[bctt tweet="The odds against making a living in the day-trading business are about the same as the odds against making a living at racetracks, blackjack tables or video poker. In fact, I think of day trading as at-home casino care." username="get12min"]
[bctt tweet=“The basic story remains simple and never-ending. Stocks aren’t lottery tickets. There’s a company attached to every share.” username=“get12min”]
[bctt tweet=“It’s impossible to distinguish cod from shrimp when your mutual fund has lost the equivalent of the GNP of a small, seagoing nation.” username=“get12min”]
[bctt tweet=“But rule number one, in my book, is: Stop listening to professionals.” username=“get12min”]
[bctt tweet=" Success is one thing, but it’s more important not to look bad if you fail. There’s an unwritten rule on Wall Street: ’You’ll never lose your job losing your client’s money on IBM.’" username=“get12min”]
Our Critical ReviewWhen we were making our picks for our "Top Finance and Investing Books" list some time ago, one of the first things we decided upon was the inclusion of both "One Up on Wall Street" and "Beating the Street."
Not only because of the fact that reading Peter Lynch is extremely fun and enjoyable. But because following his advices may make you rich.