One Up On Wall Street is a succinct, clear and highly entertaining guide to stock investing by Peter Lynch, the man Time magazine called "The # 1 Money Manager." This book is so well-written that the reader feels transported to Mr. Lynch's side as he spins stories from his own career that illustrate the most fundamental and sage truths about equity investing.
The book is based on an often misunderstood premise, namely that the common man has advantages over mutual funds when investing. Mr. Lynch points out that knowledge of products and services that people use in their daily lives can often lead to highly successful investments.
However, this approach has generally been oversimplified in the media to mean "buy what you know." That is not the extent of Mr. Lynch's message, and his book provides many cautions to those who invest without proper research. In fact at the outset the book provides a brief discussion of alternative investments to stocks. For one, Mr. Lynch suggests that the reader, "Invest in a house before you invest in a stock."
Being aware of a desirable product or service is often a useful reason to investigate a company, according to Mr. Lynch, but it is just the beginning of the process of picking a stock. One Up On Wall Street deals with many other important and essential aspects of researching stocks.
For example, the book goes to great length to help the reader put an accurate value on a stock so as to avoid buying at an overvalued price. It stresses the importance of evaluating the quality of a stock's earnings, the value of a company's assets, the risks of debt, the sustainability of growth, the benefits of monopolies, patents, and government protection.
Mr. Lynch's book also stresses the importance of buying great companies that are undervalued or unappreciated as opposed to trying to time the market.
He points out the importance of a company's size relative to its competitors. He also educates the reader concerning six categories of stocks – slow growers, stalwarts, fast growers, cyclicals, asset plays, and turnarounds. For each category, he outlines the parameters that one uses to buy, monitor, and sell the stock.
The book makes good use of annotated charts and graphs to reinforce key points. The author also goes into detail concerning stock research and the use of references. Yet Mr. Lynch, who concentrated on history and philosophy in college, reassures the reader that equity investing requires no great mathematical aptitude or knowledge: "All the math you need in the stock market you get in fourth grade."
This book is disarmingly simple, yet it makes a useful reference and bears reading many times over. One caution however, is that this book's strategy is very time-consuming to implement. If one takes shortcuts, the risks of loss go up dramatically. Even when one applies these methods, the number of stocks in one's portfolio is many times smaller than in a mutual fund, and therefore, the risk is potentially greater.
Although Mr. Lynch did not make his fortune in index funds, and although they do not offer the spectacular gains that his methods can provide, perhaps a brief discussion of their advantages would benefit the average investor.