One Up on Wall Street

Peter Lynch--the most successful fund manager of all times, wrote such a humorous, engaging and informative book that I had to read it twice!

The chapters cover in great detail the following general advice given by The Great One(from page 285):

Market declines are great opportunities to buy stocks in companies you like...

Trying to predict the direction of the market...is impossible.

To come out ahead you don't have to be right all of the time...

The biggest winners are surprises to me...

Different categories of stocks have different risks and rewards.

Stock prices often move in opposite directions from the fundamentals but long term, the direction...of profits will prevail.

Just because a company is doing poorly doesn't mean it can't do worse.

Just because the price goes up doesn't mean you're right.

Just because the price goes up doesn't mean you're wrong.

Buying a company with mediocre prospects just because the stock is cheap is a losing technique.

Selling an outstanding fast grower because its stock seems slightly over-priced is a losing technique.

Companies don't grow for no reason, nor do fast growers stay that way forever.

You don't lose anything by not owning a successful stock, even if it's a tenbagger(a stock that's up 10 times the price you paid).

A stock does not know that you own it.

Don't become so attached to a winner that...you stop monitoring the story.

If a stock goes to zero you lose just as much money whether you bought it at $50...$5, or $2--everything you invested.

When favorable cards turn up, add to your bet, and vice versa.

You won't improve your results by pulling the flowers and watering the weeds.

If you don't think you can beat the market, then buy a mutual fund and save yourself a lot of extra work and money.

There is always something to worry about.

Keep an open mind to new ideas.

You don't have to "kiss all the girls." I've missed my share of tenbaggers(great stocks) and it hasn't kept me from beating the market.

Lynch coined the word tenbagger to describe super growth stocks: a stock that doubles in value is a twobagger, a stock that triples is a threebagger...tenbagger, etc. Some rare stocks are even onehundredbaggers.

The book shows how Lynch hunts down and captures these multi-bagger growth stocks. This strategy worked really well during the booming stock market of the 1980's and 1990's. However, there is a bit of stock market history the book fails to mention.

A BRIEF HISTORY OF THE STOCK MARKET

From 1950 to 1973 there was a raging bull market, similar to the one we had in the 1980's and 1990's. Multi-bagger growth stocks did extremely well during that period. There was a special group of multi-baggers called the Nifty Fifty.

The Nifty Fifty group of stocks were thought to be invincible. You could just buy them and forget about them. They made a lot of investors filthy rich--until IT happened...the worstest, nastiest bear market since the crash of 1929!

All those rich multi-bagger investors lost their shirts! They became so poor they had to add an extra "o" to the word, like this: pooor.

Most of the Nifty Fifty companies went kaput! The remaining survivors became reeeeeeeally cheap when the market bottomed in 1974-75.

That was when a bright, young Wharton grad(Lynch) began his illustrious career. He could not have timed it better--and he wasn't even trying to time the market.

From 1975 to the year 2000, the market went up, and so did all those very cheap growth stocks Peter Lynch decided to buy. In his book Lynch insists that the direction of the macro-market does not matter, but history proves that it does not hurt to pay attention.

CAVEAT

Overall, Lynch's book is great, but he himself admits: "The biggest winners are surprises to me [so were the biggest losers]".

Keep in mind that another reason why Lynch's strategy worked so well was because he was the only one at the time using it--that gave him the unfair, one-up-on-wall-street advantage.

Unfortunately, by writing a very popular book, he has given his playbook to all the competing teams. As a result, everyone and his brother has bought the stocks that Lynch would buy. Most growth stocks are no longer cheap, and so it is that much harder to succeed.

Moral of the Story

If you ever find a clever way to make money in the stock market, keep it under your hat until you become a millionaire--then write your book.