The Number 1 Book You Need To Read This Year
During the first conversation I had with my manager when I landed my job here at MyWallSt, he recommended that I read a book about investing before my start date. He highlighted the importance of its information and how MyWallSt’s investing philosophy was heavily influenced by the writer. Excited to begin researching the stock market, and the company I now work for, I rushed to Amazon and searched: ‘One Up On Wall Street’ by Peter Lynch.
The famous book was published in 1989, so don't expect to find any great stock tips from the legendary investor. However, what Lynch does provide is an investment strategy that can last a lifetime. ‘One Up On Wall Street’ quickly became a number one bestseller worldwide and is still relevant 32 years later.
Lynch’s outstanding performance in managing Fidelity's Magellan Fund over 13 years earned him a reputation as a top performer on Wall Street. By increasing the fund's assets from $18 million to $14 billion — averaging an almost 30% annual return — he made it the best performing mutual fund in the world. So he really is worth listening to.
When Lynch first started working at Fidelity 50 years ago, the Beatles were still a band, you could buy a gallon of gas for $0.34, and a computer took up an entire room. The world has changed vastly over the years, but Lynch shows us that our investment strategies shouldn’t.
Key takeaways from ‘One Up On Wall Street’
Use your advantage as an individual
One message that really surprised me was when Lynch suggested that a new investor could outperform professional fund managers. It went against all my preconceived ideas about Wall Street, this image of men in suits who had spent years learning about the stock market were surely better at buying stocks than me, right?
Well, Lynch didn’t mean that professional investors didn’t know what they’re doing, he was referring to the limitations which hold them back from taking risks because they’re investing with their client’s money, not their own. Individual investors do not have to answer to anyone if their stocks drop drastically, meaning they have the authority to hold out until the stock rebounds.
Furthermore, fund managers tend to only pick stocks of a certain size that have a solid credit rating, whereas individuals are free to invest in smaller companies which can result in bigger gains.
Buy what you know
The most valuable lesson Lynch gave me was how to use the knowledge I already possess about companies and trends to my advantage when buying shares. As a consumer, we are constantly exposed to new products, up-and-coming companies, world events, and even government policies that will shape the future market. All of this information can be transferred into investing knowledge. Individuals have the power to see trends emerge in their own community before they reach Wall Street meaning you might have the possibility to invest in companies whilst their share price is still low.
Lynch used this logic when he bought shares in a company called Hanes after his wife raved about their new product L’eggs — women’s tights sold in an egg-shaped container. The stock went on to become one of his fund’s largest holdings and by the time the company was bought out, the shares had increased 30-fold.
Lynch especially loved companies that you can easily understand. He liked eating tacos from Taco Bell, so he invested in the company (now owned by Yum! Brands). He was also startled by the excessive amount of refuse produced in the U.S. so he bought shares in Waste Management. They may not be interesting or hot companies to buy, but as Lynch points out, boredom and disinterest are two critical components to finding the next 10, to 50-baggers.
I believe that striving to have the perfect portfolio, the right stocks, and maintain the correct balance holds a lot of people back from investing. Lynch explains with his coined term “tenbaggers” — stocks that increase ten times in value — that owning just one of these stocks could greatly increase your long-term wealth and can make up for many other failures you have in your portfolio. So, a well-balanced and diversified portfolio is really important as it gives you more of a chance of finding a ‘tenbagger.’
“All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out.”
Like MyWallSt’s ‘Six Golden Rules’ for investing, Lynch also agrees that you must invest for the long-term in order to receive higher returns. Investors need to ignore the daily movements of a stock price because it is time-wasting. Instead, he recommends focusing on the company's earnings, as over the long term, a stock's price follows its earnings. To become a successful investor, you need to accept losses and hold onto stocks in hard times.
“The typical big winner in the Lynch portfolio (I continue to pick my share of losers, too!) generally takes three to ten years or more to play out.”
We’ve barely scratched the surface on all of the investment knowledge in this book, so we highly recommend you read it for yourself as Lynch explains perfectly a lot of the investment philosophies behind the stocks we discuss.
Even if you disagree with his ideas, new investors can still learn some useful lessons about buying stocks. For experienced investors who are well accustomed to the stock market, I still propose you read it as it may just change your mind about your own investment strategy.