ONE UP ON WALL STREET REVIEW
“Behind every stock is a company, find out what its doing.”- Peter Lynch.
Here we present you the book review of One up on Wall Street by Peter Lynch
Peter Lynch is an American investor and a former fund manager who is known for the performance of Magellan Fund in Fidelity Investments. From 1977 to 1990 the fund had an annual return of 29.2%. It was the double of what the other funds in the market were offering. The assets under management grew from $18 million to $14 billion, during this period.
The book is for an average ordinary investor. It is an assumption, that to deal in the streets you should be one amongst them. But Peter Lynch proves this to be wrong. His philosophy of investing states, that an individual should have thorough research and steady discipline for investing. To be a professional investor is not of importance.
It throws light on simple rules that you need to remember to be a good investor even if you’re not a professional one. The books kick-starts from the concept of tenbagger. Tenbagger are those stocks whose value increases 10 times to what it initially was.
According to Lynch if you own 6 stocks, you just need 1 to be a tenbagger for hefty returns. If out of those 6 stocks, 5 are at 0% profit and only 1 is a tenbagger, you still earn a rate of return of 66%. His theory of tenbagger is backed by proof. Stocks like la quinta motor inns, taco bells, Philip Morris (if invested in) would have been the tenbaggers in your portfolio.
The book gives major focus on the types of stocks that you should invest in. Your selection of stock should depend upon observations. The companies which you observe in daily life should be considered for this. Choose stocks that you can rely upon. Focus on what you know, not what street experts tell you.
An average man is in constant contact with the companies since he is the beneficiary to all the services provided by the company. This gives him an upper hand in understanding the present performance and the future potential.
In the first few pages of the book Lynch asks his readers, to ask themselves a few questions before initiating investment.
- Do I own a house?
- Do I need the money?
- Do I have the personal qualities to make it succeed?
These questions might seem irrelevant to some but Peter had chosen them rationally. House is the sign of stability. Having enough money means your needs are fulfilled and it’s the excess that you use for investment. Even with all the knowledge, if you don’t possess the qualities that you need during the course of investment, you will fail as an investor.
Lynch urges his readers to do their homework before investing. Before moving to the part where he explains how to invest, the book explains what to do before investing.
Investment should not be dependent on how hot the stock is or what is the word about it on the streets but rather on its performance in the market, its products and the clientele. The factors driving growth should be taken into consideration not just the numbers.
He stresses on this part to make people understand that while buying a stock you are purchasing part ownership in the company. Which means your aim is to make an investment and not a mere expense. Judge its future potential by evaluating its past performance.
In the final section of the book, the art of building a portfolio is explained. It explains when an individual should go long and when should he go short.
Following are the shortlisted key-points.
- When the reason why you owned the shares no longer exists, only then sell your shares.
- When I’m 25% down I’m a buyer; follow this principal always.
- Buy when the market is down. It is the opportunity to buy lower than the reckoned rates giving you an increased profit margin for sale.
- Have patience. Not all stocks perform overnight. If you believe in the fundamentals of the company, stick through.
- Don’t buy a stock just because its prices have skyrocketed; buy because it has future potential.
The book shares the personal life experience of Peter Lynch. Penning down his failures, Lynch has successfully given a balanced view. The book has been written in an easy-to-understand language which allows even an individual from the non-financial background to reap its benefits.
The examples mentioned are taken from the real life scenario which means they have real life application. They can be referred to when one is in the same circumstance. It provides a good head start for common investors; giving them a brief idea about the street in a language that they are familiar with.
It’s a re-read for any investor for brushing up the basics. The flow of the book has successfully covered investing from every nook and corner. Logical reasoning being the base of every explanation, all the concepts are explained with common sense.
The book is thorough in its concepts. A clear idea has been given on how to choose stocks. Being written in 1989 the book is filled with the examples of the past but they can be familiarised with on any search engine. The book primarily focuses on individual stock investing.