Deep Dive

One Up On Wall Street (by Peter Lynch)

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This document is an excerpt from the book "One Up on Wall Street" by Peter Lynch and John Rothchild.

Peter Lynch is an American investor and mutual fund manager. He is known for managing the Fidelity Magellan Fund from 1977 to 1990 and for co-authoring the books "One Up On Wall Street" and "Beating the Street." In the book "One Up On Wall Street," Lynch argues that everyday people have an advantage over Wall Street professionals in finding great companies and stocks.

  • He encourages amateur investors to ignore the short-term gyrations of the market and invest in the long term (5 to 15 years) for better rewards.
  • The book is written for individual investors to offer encouragement and basic information. Lynch believes the same principles that helped him perform well at Fidelity Magellan Fund still apply to investing in stocks today.
  • Lynch emphasizes the importance of researching and understanding the companies you invest in.
  • He advises investors to look for opportunities in companies they encounter in their daily lives, such as at the mall, restaurants, or auto showrooms.
  • He also warns against chasing hot stocks in hot industries without proper research.

    • Lynch offers a systematic approach to stock picking.

    • He explains how to assess yourself as an investor,
    • Categorize stocks (slow grower, stalwart, fast grower, turnaround, asset play, cyclical),
    • Research promising opportunities,
    • Evaluate companies to invest in and to avoid,
    • Learn to use different resources such as brokers and annual reports.

      • The book encourages readers to understand financial statements and to look for key metrics like earnings growth, debt levels, and cash flow.

      • He outlines the importance of developing a "story" for each stock,
      • He shares a “two-minute drill” method to understand companies' plans,
      • Provides a detailed checklist for evaluating stocks based on their category.

        • He cautions investors to be wary of:

        • Whisper stocks (longshot companies with whiz-bang stories but no substance)
        • Stocks with exciting names (flashy names can attract investors to mediocre companies)
        • Companies with big customers (big customers have leverage that could hurt the supplier’s profits)

          • He advocates for long-term investing,

          • Explains how to design a portfolio to minimize risk and maximize gains,
          • Shares his perspective on when to buy and sell stocks.

            • The book also dispels common misconceptions about stock prices and discusses the pitfalls of shorting stocks and options trading.

            Finally, the book concludes with Lynch's observations on the evolving stock market and his personal experiences as a fund manager.

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            Deep DiveBy Prince Diwakar