One Up On Wall Street: How To Use What You Already Know To Make Money In

by Peter Lynch

THE POWER OF COMMON KNOWLEDGE

IS THIS A PUBLIC COMPANY?

Companies generally prefer not to have their share prices too high in absolute dollar terms, which is one reason why stock splits are declared.

Ultimately it is not the stock market nor even the companies themselves that determine an investor’s fate. It is the investor.

The Lynch Law, closely related to the Peter Principle, states: Whenever Lynch advances, the market declines.

As I look back on it now, it’s obvious that studying history and philosophy was much better preparation for the stock market than, say, studying statistics.

Investing in stocks is an art, not a science, and people who’ve been trained to rigidly quantify everything have a big disadvantage.

All the math you need in the stock market (Chrysler’s got $1 billion in cash, $500 million in long-term debt, etc.) you get in the fourth grade.

Logic is the subject that’s helped me the most in picking stocks, if only because it taught me to identify the peculiar illogic of Wall Street.

A lot of investors sit around and debate whether a stock is going up, as if the financial muse will give them the answer, instead of checking the company.

“If I have seen further . . . it is by standing upon the shoulders of Giants.”

“Stocks you trade, it’s wives you’re stuck with,”

corporate finance or accounting,

Can learning this really help me become a better investor?

between the chance of making an unusually large profit on an unknown company and the assurance of losing only a small amount on an established company, the normal mutual-fund manager, pension-fund manager, or corporate-portfolio manager would jump at the latter.

You don’t have to spend a quarter of your waking hours explaining to a colleague why you are buying what you are buying.

The point is that fortunes change, there’s no assurance that major companies won’t become minor, and there’s no such thing as a can’t-miss blue chip.

Stocks are most likely to be accepted as prudent at the moment they’re not.

By asking some basic questions about companies, you can learn which are likely to grow and prosper, which are unlikely to grow and prosper, and which are entirely mysterious. You can never be certain what will happen, but each new occurrence—a jump in earnings, the sale of an unprofitable subsidiary, the expansion into new markets—is like turning up another card. As long as the cards suggest favorable odds of success, you stay in the hand.

Six out of ten is all it takes to produce an enviable record on Wall Street.

They spend months choosing their houses, and minutes choosing their stocks. In fact, they spend more time shopping for a good microwave oven than shopping for a good investment.

It makes sense to review the family budget before you buy stocks.

Only invest what you could afford to lose without that loss having any effect on your daily life in the foreseeable future.

patience, self-reliance, common sense, a tolerance for pain, open-mindedness, detachment, persistence, humility, flexibility, a willingness to do independent research, an equal willingness to admit to mistakes, and the ability to ignore general panic.

The true contrarian is not the investor who takes the opposite side of a popular hot issue (i.e., shorting a stock that everyone else is buying). The true contrarian waits for things to cool down and buys stocks that nobody cares about, and especially those that make Wall Street yawn.

The trick is not to learn to trust your gut feelings, but rather to discipline yourself to ignore them. Stand by your stocks as long as the fundamental story of the company hasn’t changed.

interest-rate disciples, Federal Reserve watchers, and fiscal mystics quoted in the newspapers.

What really is the role of these in the market? What are they in the first place?

the stock market is in some way related to the general economy, one way that people try to outguess the market is to predict inflation and recessions, booms and busts, and the direction of interest rates.

Some people wait for these bells to go off,

No matter how we arrive at the latest financial conclusion, we always seem to be preparing ourselves for the last thing that’s happened, as opposed to what’s going to happen next. This “penultimate preparedness” is our way of making up for the fact that we didn’t see the last thing coming along in the first place.

The best place to begin looking for the tenbagger is close to home—if not in the backyard then down at the shopping mall, and especially wherever you happen to work.

So often we struggle to pick a winning stock, when all the while a winning stock has been struggling to pick us.

Why it is that stock certificates, like grasses, are always greener in somebody else’s pasture I’m not sure.

The person with the edge is always in a position to outguess the person without an edge—who after all will be the last to learn of important changes in a given industry.

Though people who buy stocks about which they are ignorant may get lucky and enjoy great rewards, it seems to me they are competing under unnecessary handicaps, just like the marathon runner who decides to stake his reputation on a bobsled race.