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One Up On Wall Street: A Summary

One Up On Wall Street: A Summary

November 21, 2023

"One Up on Wall Street" by Peter Lynch is a classic investment guide that provides valuable insights into the world of stock market investing. Lynch, a legendary fund manager who achieved remarkable success managing Fidelity's Magellan Fund, shares his investment philosophy and strategies in a straightforward and accessible manner.

Why People Can Beat Professionals

The book begins by emphasizing Lynch's belief that individual investors have a unique advantage over professional fund managers.

Successful money managers attract money from investors. More money in a fund equals fewer opportunities and less flexibility. Fund managers also have a self-interest in keeping their jobs and could be less likely to take risks. The fund manager could be investing to not lose instead of investing to win.

Invest in What You Know

Our daily habits and interactions with companies and services we like can be viewed as research. Lynch says, "If you like the store, you'll like the stock." Professional fund managers would have to spend countless hours of research to find out what you know just by being a patron of a company or a user of a product. However, check the bottom line. Just because you enjoy a product or service, doesn't mean other people do too. How much does that product or service contribute to the company's success?

Lynch also discusses his approach to categorizing stocks, dividing them into different categories. He says there are six different categories:

  • Slow growers - big companies that usually pay dividends. Return potential between 1% and 4% per year
  • Stalwarts - won't grow slow, but won't grow fast either. 10% to 12% growth per year potential
  • Fast growers - usually smaller, more nimble companies in high-growth industries. Return potential of 20%+ per year.
  • Cyclicals - risk and fall with the business cycle. Timing with these companies matters.
  • Turnarounds - potential fatalities like declining earnings or poor balance sheets. If a downturn is avoided, investors are usually rewarded.
  • Asset plays - an undervalued company with a valuable asset, like real estate or intellectual property.

Throughout the book, Lynch shares anecdotes from his own experiences to illustrate key concepts and lessons.

The 10 Bagger

A term that Lynch coined that describes a stock that increased in value by 10x. Here are the traits of a 10-bagger:

  • The company name is dull or ridiculous
  • It does something dull
  • It does something disagreeable
  • Institutions don't own it and/or it's not followed by analysts
  • The company's industry isn't growing
  • It has a niche
  • It has recurring revenue
  • Insiders are buying it
  • The company is buying back shares

The 5 Traits of a Reversed 10 bagger

A reversed 10-bagger is a company that has a chance to lose incredible amounts of value. Here are the traits of a reversed 10-bagger:

  • It's in a hot industry
  • It's the "next" something (next Amazon, for example)
  • The company is diversifying. Lynch calls it "diworseifying"
  • The company is dependent on a single customer. One customer makes up a lot, most, or all of it's revenue
  • Whisper stock - the long shot that has to achieve an impossible task in order to succeed

One of the book's central themes is the importance of doing thorough research and staying informed about the companies in which one invests. Lynch advocates for a long-term investment strategy, emphasizing the significance of patience and discipline in achieving financial success. He also explores the pitfalls of market timing and the benefits of ignoring short-term market fluctuations.

In addition to sharing his investment wisdom, Lynch addresses common mistakes that investors make, such as falling in love with a stock or succumbing to the herd mentality. He provides valuable tips on how to avoid these pitfalls and maintain a rational and disciplined approach to investing.

"One Up on Wall Street" is not only a practical guide to stock market investing but also an engaging and enjoyable read. Lynch's conversational style, combined with his wealth of experience, makes the book accessible to investors of all levels. Whether you're a novice or an experienced investor, Lynch's timeless advice and insights can help you navigate the complexities of the stock market and make informed investment decisions.