If you are serious about becoming a successful stock picker then Peter Lynch's beating the street and 'One up on wall street' are 2 of the best books to buy and read as a retail investor. I was recommended both books by an investment analyst who I worked with and I couldn't be more thankful for such a great recommendation. In this article I will highlight and summarise some of the most important areas of the book 'One up on wall street' as well as the parts that I found most interesting and useful as a newbie retail investor which I was some years ago. Please note that there will be affiliate links on this guide.
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Who is peter Lynch & Why should you read his books?
Peter Lynch is well known as the investor manager of the Magellan fund at Fidelity which managed an average of 29.2% per year f between the years of 1977 and 1990. This means he was consistently more than doubling the stock market index and thus making the Magellan fund the best-performing mutual fund in the world at the time.
Can the amateur retail investor do better than the professionals
Individual investors can do better than professional, and the professional investors have many disadvantages that retail investors don't have.
Size: Fund managers manage large amounts of money a
There is a lot of explaining to do
Capital is dependant on clients - A lot of money when everything is expensive and not so much money when things are cheap.
The amateurs investor has some key advantages over analysts and fund managers:
1. Individuals have information on companies that they consume from usually earlier than analysts on wall st.
Peter Lynch - "If you like the store, chances are you'll love the stock"
What companies do you consume from on a day to day basis?
6 Categories of stock Investments
Slow Growers - Large and operate in a mature industry, if you invest in such a company, you do it mainly for it's dividends
Stalwarts - These are the inbetweeners, earnings growth rate of 10 % to 12% per year
Fast Growers - New enterprises growing 20% or more a year
Cyclicals - Business profits move in live with business cycles. There is a lot of demand for their products when things are going well and there is a loss in demand during times of uncertainty - Timing is everything
Turnarounds - Companies whose stock price has been beaten up, may have problematic balance sheets but may show potentials of a turnaround. if you catch them low you can be rewarded generously.
Asset plays - "any company that’s sitting on something valuable that you know about, but that the Wall Street crowd has overlooked."
Companies can belong to more than one category at the same time and also companies can move from one category to another.
10 Baggers | Tenbaggers
This is known as a stock that has appreciated 10 times the price that you purchased it at.
Peter says that there are clues that you can pick up on that can guide you towards finding a potential 10 bagger. Examples include things such as:
- If the companies name is dull
- It does something disagreeable
- Institutions don't own it and/or analysts don't follow it
- The companies industry isn't growing
- It has a niche
- The company has reoccurring revenues, eg follows a subscription service business model
- Insiders are buying
- The company is buying back shares
Stocks to stay away from | Traits of the reversed Tenbagger:
Its in a hot industry
its 'the next' something
The company is diworseifying
It's dependent of a single customer
Its a whisper stock
The amateur can outperform the professionals because the game is rigged in favour of the individual retail investor. You can categorise stocks by 5 categories, you can possibly find 10 baggers and be-aware of the stocks your should stay aware from.
This has been a very simple and basic summary of some of the things that I find interesting in the book but of course to get the real in depth guidance from Mr Peter lynch himself, you will need to purchase the book.
Buy it here