Book SummaryBeating the Street, by Peter Lynch

1-Page Summary1-Page Book Summary of Beating the Street

In Beating the Street, famed mutual fund manager Peter Lynch explores how ordinary investors can outperform the market—and the pricey Wall Street fund managers who assemble stock portfolios—through hard work, diligence, and persistence in picking the right stocks to build a winning portfolio.

Lynch’s key insight, drawn from his decades of success managing the Magellan Fund at Fidelity, is that all the information anyone needs to become a successful investor is readily available—you just need to be willing to put in the hard work to translate that information into well-researched and timely stock investments.

In this guide, we’ll explore Lynch’s strategy by which non-professional, individual investors can beat the pros at their own game, looking at:

• Why bonds, despite their reputation as a low-risk investment, offer poorer returns than stocks over the long haul
• Why it’s crucial to do your homework and understand everything about the companies you’re investing in
• The importance of being patient, persistent, and willing to endure the inevitable short-term losses that come from investing in the stock market

Throughout the guide, we’ll supplement...

Beating the Street Summary Part 1: Beware of Bonds, Trust in Stocks

Lynch writes that, despite their reputation as a riskier and more volatile investment, stocks have significantly outperformed bonds over the long term. In this section, we’ll explore the downside of bond investing by first exploring the basics of how bonds work and then detailing some of the main risks that come from investing in them. Then we’ll examine why Lynch advocates stocks as a superior investment.

How Bonds Work

To understand why many investors think bonds are less risky than stocks, it’s useful to briefly explain how bonds work. A bond is a debt obligation issued by a borrower—with the borrower usually being a corporation, a state or municipal government, or the US Treasury. These entities issue bonds to raise capital. When you purchase a bond as an investor, you’re loaning money to the bond issuer, which pays you back with interest.

We can illustrate how bonds work with an example. When you buy a $1,000 bond from the issuer, it typically pays out interest at a fixed rate (the coupon rate) for a specified period of time. At the end of this period, the bond purchaser receives the full $1,000 value of the bond (the face value). So if your one-year...

Beating the Street Summary Part 2: Selecting and Managing Your Stocks

Now that we understand the advantages of stocks over bonds, it’s time to explore Lynch’s suggestions for how to construct a successful portfolio.

Lynch writes that amateurs can pick stocks as well as—and often better than—professional portfolio managers. But, he cautions, outperforming the pros isn’t easy. It requires researching the financial and market fundamentals of the companies whose stocks you buy. Once you construct that portfolio, he writes it’s important to monitor and manage it effectively: Avoid investing in so many stocks that you can’t keep track of them, do a regular review of your holdings to know which companies’ stocks to dump or buy more of, keep your portfolio diversified, and play the long game.

Alternate View: Focus on Overall Market Data, Not Specific Stocks

Some successful investors have taken the opposite approach from Lynch—forgoing detailed analysis of individual companies and instead focusing on large-scale, market-wide price fluctuations. In The Man Who Solved the Market, Gregory Zuckerman tells the story of Jim Simons, a former mathematician who became one of the...

Beating the Street Summary Part 3: The Case for Index Funds

We’ve now explored why you should invest in stocks instead of bonds and how you should build and manage your personal stock portfolio. But what if you want to get exposure to the stock market without going through the trouble of researching, building, and managing your own portfolio of individual stocks?

Lynch writes that stock funds can offer a good alternative to constructing and maintaining your own stock portfolio. So what are stock funds and how do they work? A stock fund is a type of investment fund that pools money from multiple investors to invest in a selection of stocks. When you buy shares in a stock fund you don’t actually own the underlying stocks—instead, you own shares of the fund itself. The fund manager is responsible for selecting and maintaining the mix of stocks in the fund, which saves you the time and trouble of having to do this.

But, as we’ve seen, Lynch is skeptical of pricey fund managers, who he argues often charge high fees and deliver returns that don’t even beat the average market returns. That’s why he recommends stock index funds as a particular type of stock fund for investors who want to enjoy solid returns without having to manage their...

Shortform Exercise: Build Your Ideal Portfolio

Lynch writes that anyone can succeed in the stock market through research, persistence, smart investments, and vigilance. Think about how you can apply Lynch’s insights to build your ideal portfolio.

Do you think ordinary investors can put together and actively manage stock portfolios of individual stocks that can consistently outperform the market? Explain why or why not.