Finance
by Peter Lynch
Can an amateur beat the pros?
Peter Lynch was running Fidelity's Magellan fund, one of the best-performing funds in America, when he wrote this book in 1989. His surprising claim is that an ordinary person who pays attention can often spot a great company before the professionals do. He also shows where amateurs go wrong.
Hear a sample · read by Laura
Lynch's perfect stock sounds boring or does something unpleasant, like cleaning grease off car parts or running funeral homes. Analysts ignore it and fund managers are embarrassed to own it, so the price stays low while profits grow. By the time Wall Street notices, much of the rise has happened.
Lynch's rough rule is that a fairly priced share has a price-to-earnings ratio about equal to its growth rate. A company growing profits 15% a year on a P/E of 15 is fair. A P/E half the growth rate is very promising, and one double it is a bad sign.
Lynch says nobody can reliably predict interest rates, the economy or the stock market, and he doesn't try. He spends his time on companies instead. If you understand what a business does and how its profits are growing, the market's moods matter much less over the years.
Your edge
Ordinary people often spot great companies first, at work or at the shops, before the experts do.
Homework
Liking a product isn't enough. Study the company before you buy its shares.
Six kinds
Sort every stock into one of six kinds, from slow growers to turnarounds, and expect different things of each.
Two minutes
If you can't explain in two minutes why you own a stock, you probably shouldn't own it.
Boring
Boring businesses with silly names are often bargains, because Wall Street ignores them.
A story from the book
Lynch's wife Carolyn came home with L'eggs, pantyhose sold in plastic eggs at the supermarket, and loved them. Lynch looked into the maker, Hanes, liked what he found and bought the shares. They turned into one of his big winners. Shoppers had noticed the product long before Wall Street did.
One thing to try
For one week, note the products and shops you or your family keep going back to. Pick one and find out who makes it and whether its shares are listed. Lynch would read the company's accounts before buying anything, so treat this as the start of the homework.
Knotd has the key ideas from 250+ non-fiction books, each in a few minutes, in plain words. One Up On Wall Street comes with a Name That Idea round and a Spot the Trap case to make it stick.
Get the whole book on KnotdOpen in the appCan an amateur beat the pros? Peter Lynch was running Fidelity's Magellan fund, one of the best-performing funds in America, when he wrote this book in 1989. His surprising claim is that an ordinary person who pays attention can often spot a great company before the professionals do. He also shows where amateurs go wrong.
Dull is beautiful; Price against growth; Skip the forecasts.
For one week, note the products and shops you or your family keep going back to. Pick one and find out who makes it and whether its shares are listed. Lynch would read the company's accounts before buying anything, so treat this as the start of the homework.
Yes. Knotd has the key ideas from One Up On Wall Street in a few minutes, in plain words, plus a Name That Idea round and a Spot the Trap case to test them. It's one of 250+ non-fiction books in the app.
