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Beating the Street
on September 13, 2004
This is one of the "must read" books for anyone wanting to invest well, and gets 5 stars for that reason only. It is by and about Lynch and his legendary carreer @ Fidelity's Magellan Fund, and the period Lynch knocked the cover off the ball hitting home run after home run for a long string of years.
How did he do it? Well, several other reviews point out the difficulty of extracting Lynch's secret formula, and they rightly describe the lack of formulaic presentation. If there was a fabulous book on Lynch instead of this autobiographical one, I might put it on the "must read" list instead. There is not (yet, maybe Lowenstein will grace us with one?). However, too many fail in investing by looking for instant-coffee recipies that any boob can implement from the couch. If it was that simple, everyone would be rich. Success takes work and in-depth understanding of some, probably simple, strategies that ordinary investors can learn. In fact, investors who focus on fundamentals of the sort described by Lynch, & stay tuned out of the frenetic trading centers' "action," are likely to increase chances of success. The real beauty of Lynch's book is the myriad of different strategies, one or a few of which each of us can learn and implement as our investing "sweet spot."
Lynch covers a series of investment decisions in some detail. The detail is not uniform from company to company, position to position, making comparison of his formula difficult between investments. And he does not summarize his formula anywhere in the book. This oversight (which may be intentional to more quickly drop the instant-coffee addicts) leaves it up to the reader to digest the material and extract the essential focus of the master. I suggest a relaxed, 3 part method to do the extraction:
1) read the whole book (its easy reading), then set it down for a week or so.
2) read it a second time, pencil or highlighter in hand, and mark where you spot formulaic focus you can implement.
3) read it again in 6 months or a year, and repeat #2. This time around, with the aging of the first 2 readings, you will be surprised at how the formulae stand out. You will "see" more of what Lynch describes, and take your understanding of the master's strategic vision to a new and satisfying level. Not all examples will give the same level of insight to the master's strategies, so don't strain to make Lynch's magic stand out on every page. It is really only about what you can see & replicate. Even one good trick, well understood, will be worth the effort for your invesment results. If you can find 2 or 3 good tricks, like I did, you are on your way to richer success.
I have read this book at least 5 times (so far), and I get a firmer understanding of Lynch's myriad strategies each time. As a master of the game, and with a mountainous pile of cash demanding a high yield, Lynch needed many strategies to keep out-distancing all the averages. He did just that. Although a cookbook would be easier to put into use, it probably wouldn't work as well, as it wouldn't require depth of understanding. Patience is the key to implementing this important work.
Beating the Street stands among others on the "must-read" list:
~ The Intelligent Investor, Benjamin Graham (ignore the mathematical formula, but savor the stuff on perspective & margin of safety; another book that should be re-read periodically),
~ Common Stocks and Uncommon Profits, Phil Fisher (ditto on the re-reading),
~ Conservative Investors Sleep Well, also by Fisher; out of print so watch here on Amazon for a clean used copy,
~ Buffett, the Making of an American Capitalist, Roger Lowenstein
~ The essays of Warren Buffet: Lessons for Corporate America, Buffett & Cunningham (great compendium of Buffett's own analysis of corporate governance, accounting and other issues investors need to watch),
~ When Genius Failed, the Rise & Fall of Long Term Capital Management, Roger Lowenstein. This is the sort of post-mortem on investing mistakes that every investor needs to guard against, and all the more important because it was a cadre of smart guys who lost their butts,
~ academic papers of Terrance Odean & Brad Barber, finance professors @ UC Berkeley & UC Davis, respectively, see their websites for links to papers about investor mistakes to avoid.
Good Luck on the Street!