One Up on Wall Street by Peter Lynch

31 May 2022

Hi, If you are starting your investing journey and want to learn the basics of investing or how to succeed in the stock market,
You should definitely read the book “One Up on Wall Street” by Peter Lynch, a renowned American investor, and former fund manager.

The book was published in 1989 and its authors are Peter Lynch and John Rothchild. This book is one of the best-selling stock investment books and has sold more than one million copies.

Peter Lynch, the manager of the Magellan Fund, generated an average annual return of 29.2% between 1977 and 1990.

It was consistently twice that of the S&P 500 Index, making it the world's best-performing mutual fund. As investors, we get to learn a lot from the book.

Top 5 learnings from the book

i) The first takeaway from the book is that we should focus on companies whose products we ourselves regularly use or encounter in everyday life.

For example, if you and everyone around you like XYZ company's coffee, you should definitely focus on that company. After doing detailed research, you may find that the company's financials and balance sheet are strong.

In this case, you may find a good investment opportunity. Peter Lynch has said in the book that you can find good companies only through the products you use in your daily life.

ii) The second learning is that retail investors like you and me have an edge over our professional analysts and fund managers. This is because professionals have to secure their jobs along with bringing good returns.

"You have to keep in mind that analysts are not looking only to get good returns but also to keep their jobs." Therefore, they avoid small-cap companies and invest in popular companies only.

Because even if that company doesn't do well, they won’t get fired. So, people like us have the benefit to invest in companies that may not be popular but have very good performance and potential.

So according to this book, we can beat analysts and professional fund managers if we use common sense.

iii) The third lesson of the book is that we should know why we are investing in a company.

First of all, it is necessary that we understand the business of the company in which we are investing very well. After that, we should always justify our buying decisions after detailed research & ensure that the company's fundamentals are also strong.

We should know enough information about the company we are investing in that if someone asks us, we must be able to explain it to them. As you think that the stock price of XYZ company will increase in the near future or a friend of yours asked you to. So we shouldn't buy stocks because of these reasons.

And lastly, after the investment, we should also review the company periodically and exit if its financials get bad.

iv) The fourth takeaway of the book is that as an investor, you need to be aware of your risk ability to not panic during risk capability and volatility.

The stock market never moves in one direction. Sometimes the market moves up while sometimes it is down.

So, if you do panic selling due to the market's volatility, then it will not give you a chance of compounding your investments in the long term. The book says that market corrections bring buying opportunities in the market.

If your invested companies' fundamentals are still good, then at the time of correction you should buy more shares rather than panic selling.
"The biggest mistake an investor can make is selling when the stock market drops"

v) The fifth and last learning is that if you think XYZ Company's specific product is very good, then it's not necessary that the company will grow because of it.

In such cases, you should do a deeper analysis to find out what % of the company's total revenue and profits is earned from that product. For example, suppose Nestle's Maggi brand is performing very well.

it is possible that Nestle earns only 5-10% of its revenue from the Maggi brand and the rest of their products' demand is not high in the market.

Companies with strong brands can be good but we must rationally analyze how much that brand/product contributes to the growth.
So these were the top 5 teachings of "One Up on Wall Street".

Tell us in the comments which learning you liked the most or if you have read this book, then what did you like about the book.

Write & Read to Earn with BULB

Learn More

Enjoy this blog? Subscribe to Sayantan Choudhuri

1 Comment

No comments yet.
Most relevant comments are displayed, so some may have been filtered out.