on February 2, 2001
This is the first book I ever read on investing. My cousin, Paul, who was a broker at Merrill Lynch, recommended it to me. I followed Paul into the financial services industry, toiling 12 long years peddling stocks, bonds, mutual funds and insurance products. During my tenure as a Wall Street professional (I use that term very loosely), I must have read 200 different books on investing. Oddly enough, I have discarded many of those poorly written investor guides and still refer back to this classic book penned by Peter Lynch, mutual fund demigod, investment guru, stock-picking legend!
At the heart of Lynch's case is that each individual has enough inherent knowledge and experience to be a successful investor. He uses numerous analogies to show investors:
1. The power of common knowledge (take advantage of what you already know) 2. You don't need to be a Wall Street analyst to uncover great investment opportunities 3. You are not disadvantaged vs. large, institutional investors You don't have to accurately predict the stock market to make money in stocks 4. To keep an open mind to new ideas
From my years on Wall Street, I found many of his theories and ideas to be completely accurate. Many other books I have read focus on the inherent evils of the possessed financial consultant community. Yes, the industry has its problems. However, $8 stock trades are not the only ingredients in profitable investing. In fact, I don't recall him emphasizing the need for discount trades, a fact over-emphasized in almost every other book I have read (remember, I am no longer in the industry...I don't need to strike a case for broker commissions). Instead, he shows you what information to focus on and how to apply it.
Do yourself a favor: Buy this book. Read it twice. It is not outdated...it is timeless. Yea, I know, you already know it all. My advice is to lose the ego and take a refresher course on common sense investing. When you finish, put it on your bookshelf. Do not give it to your kids or neighbors; buy them their own copies. This is a great book!
on April 3, 2006
There are 3 books any person who is new to investing in the stock market MUST have. This book, Benjamin Graham's The Intelligent Investor and Pat Dorsey's The 5 rules for successful stock investing. The insights these 3 books will give you are priceless and a MUST for anyone wanting to make money in the market. I am very happy to own all 3 and intend on passing them along to my son so he can learn how to best make his money work for him. Lynch goes through how to identify companies that may be of interest, then how to further analyze the prospects of making money by purchasing that company's stock, and then how to continue monitoring whether the stock is likely to head upward. Lynch places companies into 1 of 6 categories and gives you strategies for buying and selling companies that fall into each of the categories. As a fund manager who has proven his strategies are successful, his insight definitely carries some credibility.
on September 7, 2011
Peter Lynch has managed to achieve enormous results with his stock picking method. His investment results are sometimes mentioned in books on the efficient market hypothesis as a form of proof markets cannot be random. Quite a compliment.
Peter Lych seems like a nice guy. He doesn't consider himself to be some kind of genious nor did his trading results changed his ego too much in my opinion.
His stock picking method is fairly simple. He likes simply walking around malls and stores to pick up investment ideas. Afterward he'll check they're fundamentals (the level of debt, sales & earnings growth, net cash position, PEG ratio, industry components, ...) with special attention to the available space to keep on growing. He then goes for 10-baggers, stocks you can sell at a price 10x the price you've paid for them. Lynch doesn't mind owning dozens or hundreds of stocks if he thinks they'll grow. Fannie Mae and Freddie Mac apparently were two cash cows for Lynch (luckily he didn't own them the past years).
Although Lynch is very open about his investment selection process and what he looks at when studying balance sheets, I'm a bit disappointed I couldn't get any practical value out of this book. The most usefull I got out of this were his investment selection criteria to create a stock screen to select stocks with fundamental characteristics Lynch would consider important. But there it also stops.
Another thing Lynch doesn't mention is his position sizing strategy or his exits from the stocks he owns. This would certainly have been helpful for traders/investors like me.
on January 21, 2005
Note: I assume you already know who Mr. Lynch is (a former fund manager), and what Mr. Lynch did (he consistently beat the market - "he has a proven track record" - for almost twenty years).
The book has a witty, easygoing style; it's entertaining and informative, and you'll pretty soon find the urge to read it all as soon as possible. Beware, it's not an easy book! To read this book is not a substitute for hard work. There are no magic formulae to apply. There are no shortcuts to riches, you have to do your homeworks anyway!
"One Up" is divided in three sections. The first deals with how to assess yourself as a stockpicker; the second deals with how to find the most promising opportunities, what to look for in a company and what to avoid, and what to make of the various numbers (p/e ratio, book value, cash flow, etc - explanations are clear, this is a book for everyone) that are often mentioned in technical evaluations of stocks. The third part basically is about everything else, including when to buy and when to sell.
Mr. Lynch opens the book with his rule number one, devoted to those believing that professionals will do better than individuals because professionals know more and have more skills (I'll extensively quote him): "Stop listening to professionals! Twenty years in this business convinces me that any normal person (...) can pick stocks just as well, if not better, than the average Wall Street expert". No wonder here and there we find 1-star, angry reviews of this book!
Here are, in my opinion, the basics of this book:
The Street Lag
"Under the current system, a stock isn't truly attractive until a number of large institutions have recognized its suitability and an equal number of respected Wall Street analysts (the researchers who track the various industries and companies) have put it o the recommended list. With so many people waiting for others to make the first move, it's amazing that anything gets bought."
A Good Market or a Bad Market
"Thousand of experts study overbought indicators, oversold indicators, head-and-shoulder patterns, put-call ratios, the Fed's policy on money supply, foreign investment, the movement of the constellations through the heavens, and the moss on oak trees, and they can't predict markets with any useful consistency." Is the current a good market? Please don't ask. Don't try to time the market.
The Perfect Stock
"Getting the story on a company is a lot easier if you understand the basic business. That's why I'd rather invest in panty hose than in communications satellites, or in motel chains than in fiber optics. The simpler it is, the better I like it. When somebody says, "Any idiot could run this joint," that's a plus as far as I'm concerned, because sooner or later any idiot probably is going to be running it."
How to find the tenbaggers
("In Wall Street parlance a "tenbagger" is a stock in which you've made ten times your money".)
Among other "qualities" to look for, explained by Mr. Lynch, the following are my favourites:
- Its name sounds dull - or, even better, ridiculous;
- It does something dull;
- The institutions don't own it, and the analysts don't follow it;
- It's got a niche;
- The insiders are buyers;
- The company is buying back shares.
Of course, Mr. Lynch describes in detail why he thinks you have to look for these aforementioned (and others) qualities in a stock to qualify it as a "buy"
The flaw in Book Value
"Book value gets a lot of attention these days - perhaps because it's such an easy number to find. You see it reported everywhere (...). People invest in these on the theory that if the book value is $20 a share and the stock sells for $10, they're getting something for half price. The flaw is that the stated book value often bears little relationship to the actual worth of the company. It often understates or overstates reality by a large margin. Penn Central had a book value of more than $60 a share when it went bankrupt!".
I can summarize the only weakness I found in this book after the following quotation:
"At one point I'd decided the motel industry was due for a cyclical turnaround. I'd already invested in United Inns, the largest franchiser of Holiday Inns, and I was keeping my ears open for other opportunities. During a telephone interview with a vice president at United Inns, I asked which company was Holiday Inn's most successful competitor.
"Asking about the competition is one of my favorite techniques for finding promising new stocks. Muckamucks speak negatively about the competition ninety-five percent of the time, and it doesn't mean much. But when an executive of one company admits he's impressed by another company, you can bet that company is doing something right. Nothing could be more bullish than a begrudging admiration from a rival.
"La Quinta Motors Inns", the vice president of United Inns enthused. They're doing a great job. They're killing us in Houston and in Dallas."
"He sounded very impressed, and so was I."
Well, I guess everybody out there can pick up the telephone and have a nice, revealing conversation about the competition with a big company's vice president, uh? Don't you believe this to likely happen to you as well, do you?
And just in case, SEC's Regulation Full Disclosure made it almost impossible anyway (God bless Arthur Levitt, former SEC chairman, who gave us the Reg FD - after Mr. Lynch wrote this book).
That aside, what a great book! I definitely recommend this timeless classic.
on January 27, 2000
This is the sixth book I have read on investment in one year. Along with "A random walk down wall street" by Burton Malkiel it has bee the best and most informative. For a while I do not think I will read any investment books before I make sure I can follow Mr. lynch's SIMPLE AND PROFITABLE advice. His classification of stocks are great and his timing for buying and selling each of these classfication are also great (fast growers, slow growers, turnarounds, asset plays, cyclicals). His chapter "stocks I would avoid" is full of sincere warnings of foolish mistakes we make over and over. Add to this the introductory chapters where he explains why we should invest in what we already know makes this book a must read. It is amazing how many opportunities we all miss on stocks that are right in front of us, yet we ignore them and waste our time finding the hottest stocks when mostly these stocks are overly priced. Let me tell you about a small example of what I am talking about. I use Yahoo finance alot in my research almost on daily basis, but I never thought of knowing the company that provides it with all this wonderful information. And while once scrolling down the Yahoo page I read that Tibco Software provides it with the quote technology. (I remembered Lynch when he says that we spend most of our time trying to find the great stock when the great stock has been striving to find us). I rushed to check the stock out. Too bad it has already increased more than tenfold in a month time. GOOD LUCK TO ALL OF YOU WITH YOUR NEXT TEN BAGGERS.