As I wrap up my reading of "One Up on Wall Street," I would say that the book is filled with practical advice on how and what to look for in a company. To my surprise, Peter Lynch was not really focused on growth stocks, as the book states he had at most 30% of his assets under management under this strategy. He also had a value-oriented investment style coupled with a great deal of pragmatism. I now understand why investors across the globe refer to this book as an investment classic: It is full of practical advice, a straight forward writing style and several checklists on do's and dont's.
In the final chapter of the book, Lynch provides some great reminders for readers, among which I highlight and comment the following:
"Sometime in the next month, year, or three years, the market will decline sharply. These declines push outstanding companies to bargain prices."Here, Lynch discusses a very important point, which is that we should not expect stocks to keep rising indefinitely, since both bull and bear markets are part of investing. This is something we should keep our eyes on, to avoid paying a hefty price for our ownership of companies.
"To come out ahead you don't have to be right all the time, or even a majority of the time." Since we are human, we cannot expect to be correct all the time. In the book, Lynch states that a 60% success rate is more than enough to beat the market in the long run.
"The biggest winners are surprises to me, and takeovers are even more surprising. It takes years, not months, to produce big results." Time and patience are the allies of the successful investor. While Wall Street sells us the get-rich-quick idea, to be successful over the long run, we should provide the markets time to reflect the business fundamentals.
"Stock prices often move in opposite directions from the fundamentals but long term, the direction and sustainability of profits will prevail."I have nothing to add apart from the famous Ben Graham quote: "In the short run, the market is a voting machinebut in the long run, it is a weighing machine."
The "justs":This aspect is critical, since we need to remember that the market is there to serve us, not instruct us, and even less, not to confirm or provide us with ego-boosts (even though that is what commonly happens.) The price is just that, a reflection of the market perception in the short run, and the reflection of the business value over the long run.
- "Just because a company is doing poorly doesn't mean it can't do worse."
- "Just because the price goes up doesn't mean you're right."
- "Just because the price goes down doesn't mean you're wrong."
"Buying a company with mediocre prospects just because the stock is cheap is a losing technique." I have learned and confirmed this aspect myself. So many times the valuation looks attractive and flawless that we fall into the infamous value trap. As Warren Buffett (Trades, Portfolio) says: "Good jockeys will do well on good horses, but not on broken-down nags."
"You don't lose anything by not owning a successful stock, even if it's a ten-bagger." Many people talk about other people's gains as their losses. It is important to remember that while there are implicit opportunity costs of missing a stock, we can always look back at our bank account to see that nothing has disappeared.
"Don't become so attached to a winner that complacency sets in and you stop monitoring the story." This has also happened to me, when we become used to good results that we become complacent and lower our standards because the stock has provided us with big gains in the past. I believe this is important to remember as we keep investing.
