One Up on Wall Street is the perfect read for someone looking to learn about investing but has yet to do so due to their fear of its complex nature. Peter Lynch does a great job of explaining investing to the layman, in laymen’s terms. There are not more than a hand full of charts and figures throughout the book.
Lynch teaches the reader that understanding investing does not have to be about burying yourself in a bunch of numbers and financial statements. Don’t get me wrong. He does express the importance of a company being based on sound financials but that is only relevant once you use his “common sense” techniques to find prime investments which are quite often sitting right under our noses.
His key is to keep an eye out for businesses that you notice are doing something different. Then work towards owning companies that you understand (also a long-standing principal of Warren Buffet). As the portfolio manager of the Fidelity Magellan Fund, various restrictions kept Lynch from being able to take positions in a lot of the small public companies with great business models. We as personal investors do not have these restrictions. A lot of these very valuable companies are often not covered by any analysts, which is a great time to get a hold of them. As soon as an analyst starts covering a stock, everyone knows about it. Our advantage is that we can get in before the general public is on board.
Mr. Lynch describes great examples of companies that could have been relatively easily picked out in their early years for a very handsome return. These include The Limited, Chrysler and Leggs by Hanes. Investments like these can be discovered by paying attention to the newest products at the mall, car dealerships, one’s workplace and restaurants, among other places. Once these have come up on your radar then it is time to comb their financials for viability.
Lynch emphasizes keeping things very simple when it comes to investing. This is why he recommends staying away from things like options, futures and shorts. They are much too complex for the average investor so there is no need to get caught up in them. That has been his lifelong investment strategy and it has done very well for him. He discusses basic fundamentals to look for in a good investment such as customer set, product offering and market conditions. Sometimes the best way to get this information is to just call the company up. It all seems basic but we must always remember that common sense is not common practice (that is something you will hear me repeating a lot).
This is a great introduction to stock market investing. One of my favorite portions of this book is The Twelve Silliest Things People Say about Stock Prices, but you will have to get a copy of the book to really get into that. Happy learning and prosperous investing.
“Only invest what you could afford to lose without that loss having any effect on your daily life in the foreseeable future.”
“Investing without research is like playing stud poker and never looking at the cards.”
“If I could avoid a single stock, it would be the hottest stock in the hottest industry, the one that gets the most favorable publicity, the one that every investor hears about in the car pool or on the commuter train—and succumbing to the social pressure, often buys.”
“Invest in simple companies that appear dull, mundane, out of favor, and haven’t caught the fancy of Wall Street.”
“If you can’t convince yourself ‘When I’m down 25 percent, I’m a buyer’ and banish forever the fatal thought “When I’m down 25 percent, I’m a seller,’ then you’ll never make a decent profit in stocks.”
“…unless I’m confident enough in the company to buy more shares, I ought to be selling immediately.”
-Reading for Your Success