One Up On Wall Street is a book written by Peter Lynch. He was the manager of Magellan Fund at Fidelity Investments between 1977 and 1990. This fund averaged a 29.2% annual return during his tenure. If this result does not look impressive to you, it is more than double the return of S&P 500 index. This performance made his fund the best performing mutual fund in the world.
I bought this book in July 2018. I finished reading this book in three weeks’ time. What are the lessons that I learned in this book?
Main lesson
“You don’t need to make money on every stock you pick.”
This is the major lesson I took from the book. According to Lynch, six of out ten winners in a portfolio are enough to give a satisfying result. This is because we cannot be 100% sure that all stocks in our portfolio will make money. The stock that we pick may be going through short-term decline or our analysis of the company is wrong. This is just part and parcel of our investing journey. There is no one who is able to profit from his or her stock selection all the time. Thus, what we should aim is to maximize the number of winners in our portfolio. Quoting from the book again,
“To come out ahead, you don’t have to be right all the time, or even a majority of the time.”
When to sell?
“By careful pruning and rotation based on fundamentals, you can improve your results. When stocks are out of line with reality and better alternatives exist, sell them and switch into something else.”
This book divides stocks into six categories, namely Fast Grower, Slow Grower, Stalwarts, Turnaround, Cyclicals, and Asset Plays. Some stocks can fall into two or more categories at the same time.
Each category has its own sell criteria but I will not lay them out here. Suffice it to say that when the fundamentals of the company turn bad or the share price is no longer justified by its fundamentals, it is time to sell.
“Stock price often moves in opposite directions from the fundamentals but long term, the direction and sustainability of profits will prevail.”
Conclusion
In my opinion, this is a great investment book full of useful advices and tips. Although the author did not explicitly mention about this, I do feel that he does suggest that luck does play a role in investing. Nonetheless, luck alone would not bring us sustainable great results. By having a playbook, we can maximize our chance of gaining profits in the stock market.
Before I end, I shall share a few memorable quotes from the book here:
“People who succeed in the stock market also accept periodic losses, setbacks and unexpected occurrences.”
“When in doubt, tune in later.”
“Trying to predict the direction of the market over one year, or even two years, is impossible.”
Recommended book
If you are interested in One Up On Wall Street, you may get the book from Kinokuniya Malaysia through the link below*.
*Disclosure: The above link is Involve Asia affiliate link. Thus, I may earn a small commission when you purchase the book through this link.
