One Up On Wall Street

 Name of the Book:  One Up On Wall Street

Author: - Peter Lynch          

No of Chapter  :-20

Number of Pages: - 288

One line Description of the book:-   Simple, Crisp and Awesome

What this book is about: - Book is a culmination of thoughts and strategies of a successful American Fund Manager, Peter Lynch who had consistently beaten the index over a period of almost two decades. Author dispels the notion that one needs to be professionally qualified to be successful in investment career. He cites numerous examples in the book where he was able to find out various multi-baggers just by l around looking around in malls, gas stations and on-going developments in the vicinity. Author strongly advocates the fact that whether it is a bull market or bear market, the basic underlying principle of investing always remains the same that buy a good company at great price.

Out of the three parts of the book, the first part of the book is dedicated about preparation for investing. It elaborates the fact that investing is an art and the people who are rigid in their perception are at huge disadvantage. He elaborates how large quantum of fund managers are at disadvantageous position as compared to average investor because they had to follow rigid policies of their company and spend a good amount in talking to bosses/clients explaining their actions. Author terms the indiscriminate selling of current losers by a Fund Manager as “Burying the evidence “.  Author also compares the bonds with stocks and provided numerous reasons why latter is better for growth. Author also states that investing is a like a gamble to him in which you must manage the odds in your favour. Author has created a mirror test in the form of following three questions to test the personal psychology of an investor.

a)     Do I Own a house?:- As a person do a lot of research before putting huge amount of money and is s long term investment.

b)     Do I Need the Money?: - Only invest what you can afford to loose

c)     Do I have the personal qualities it takes succeed?

About the timing the market, Author states that nobody can time the market and most analysts come up with theories after the market fall. Author has classified the market into three stages as mentioned below:-

1. First being that nobody expects it to rise again.
2. Second stage, when it has risen 15 percent and people started paying attention to it.
3. Third stage, when market is up already 30 percent from stage 01 and everyone wants to be part of the party.

The second part of the book is dedicated on the process of picking the winners.  In this section, Author states that best places to look out for multi-baggers are nearby places, shopping stores and even your workplace where you have edge over others since you know your work place better than anyone else. Author explain how combination of consumer awareness and Professional knowledge can have lethal edge in investing field.

Author has classified the companies into 6 categories namely Slow growers, Stalwarts, Fast Growers, Cyclicals, Turnarounds and Asset Play. Author has set aside some important criteria for selection of good stocks which is enumerated below:-

a)     Companies with boring, dull, or ridiculous names

b)     Companies doing something boring, dull, and disgusting    

c)     Companies with little institutional ownership

d)     Companies without coverage of Analysts.

e)     Companies with depressing sentiments

f)      Companies in a No-growth industry

g)     Companies with a niche

h)     Company being a user of technology

i)      Insider Buying and Buy-Back of shares by Company

Apart from setting the criteria for buying, Author has also set down the criteria for avoiding the stocks

a)     Companies with next big things

b)     Companies in a hot industry

c)     Companies going under unnecessary Diversifications.

d)     Companies with very a smaller number of concentrated clients

e)     Companies with exciting names

Author has explained that stock price is ultimate reflections of earnings of the company be it in charts or be it in fundamentals. Author advises to stay away from high P/E ratio stocks. Author also states that before buying the stock, one should try to check how easily they can present a stock story to someone who is not connected with the stock market and what are the compelling reasons to buy the stock.

Author also lays emphasis on getting the first-hand facts about the company from the various resources like calling the company, visiting the company headquarters, and calling their investor relationship officers. Also, Author recommends checking the data that how many fund managers or analysts have visited the company, lesser the number more is better from investment perspective.

Author explained some important numbers like P/E < Growth ratio, (Dividend yield + Growth)/ (P/E)>2 , cash position of the company, debt of the company ( in case of turnarounds ) and dividend payout of the company, in the process of selection of a company for investment. Author also states that stated book value of the company often bears little relationship with actual worth of the company. Author also pays special importance on pension plans, inventories, growth, and bottom line of company. Author lay specific importance on rechecking of story at regular intervals to assess whether the company is going in right direction of growth.

 Third and last part of the book is dedicated toward the building the portfolio for long term. In this section, Author elaborates upon on designing a portfolio indicating number of stocks, removing the bad performing stocks on regular basis and spreading your money of various types of stocks to minimize risk.  In a chapter to buy/sell a stock, Author has provided indicators when to do the same as per category of stock. Author has devoted one complete chapter on twelve silliest things that people say about stock prices like it has gone down this much already so it can’t go much lower, it has gone this high already so it can’t go much higher etc.  

Specific Insights from the book :-

1. You won’t improve the results by pulling out the flowers and watering the weeds.
2. You don’t have to kiss all the girls.
3. Stocks with heavy institutional ownership and lots of coverage in media are due for correction

 

Conclusion:- Book is an excellent read for anyone who wants to improve his investment style and beat the index with simple time tested methods. .

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