Monday, 22nd June 2009

“One Up On Wall Street” by Peter Lynch

Written by George Traganidas Topics: Books, Stock Investing

One Up On Wall Street

This book is one of the classics on stock investments. Peter Lynch was the head of the Magellan Fund in Fidelity Investments from 1977 to 1990 and the fund average was 29.2% return during that period. This is a very impressive return when you consider that the market average is about 11% and that 80% of the fund managers fails to beat the average.

In this book, Peter Lynch shares some of his secrets on how he managed to get this returns and explains how ordinary investors can do the same and achieve higher returns that the professionals. He introduces ideas like the “ten bagger” that refer to an investment which is worth ten times its original purchase price.

He advocates buying stocks in products that you see around you ever day and you know. By knowing the products first hand, you have a good idea on how the people like the products of the company and if the company will continue to sell them. Also, he points out that professionals have many restrictions in buying shares that individuals do not have. For example, professionals will wait for a stock to become well known and get good analyst coverage before they buy it. Individuals on the other hand can buy it when it is still unknown and make lots of money on the way up before the professional start to buy it.

You should always build a story about a stock. The story should explain why you like the company and why it is the right time to buy it. You should monitor this story over time and you should be ready to sell the company if the story changes to the worst. He advises to avoid hot areas and hot stocks and look for unimpressive stocks with little analyst coverage.

Near the end of the book he talks about some of the bigger myths that exist in the financial industry like “It can not get any lower” or “It can not get any higher”. These myths have made people lose a lot of money over the years.

This is a very good book and gives a lot of practical advice on how to pick stocks and invest. As Peter says, you will not win all the time but even 6 out of 10 is a very good score. If you like the book you can buy it from here.

Follow the practical way,
George

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