Book SummaryOne Up On Wall Street, by Peter Lynch

1-Page Summary1-Page Book Summary of One Up On Wall Street

Have you always wanted to invest in the stock market but felt too uninformed or inexperienced to do so? In One Up on Wall Street, legendary investor and former manager of the Fidelity Magellan Fund Peter Lynch argues that you not only have all the tools you need to become a savvy investor but that you actually...

One Up On Wall Street Summary Reasons to Invest on Your Own

Lynch insists that you already have everything you need to do well in the stock market and that you don’t need the services or guidance of a professional investor. He believes this is the case because:

• Professional investors and firms aren’t flawless.
• You’re usually a better source of knowledge than professional investors.

(Shortform note: Others agree with Lynch that you don’t need the guidance of a professional when investing. In The Simple Path to Wealth, J.L. Collins even asserts that firms make investing seem complex to convince potential clients they need a firm’s expertise.)

Professional Investors and Firms Aren’t Flawless

Lynch argues that professional investors can lead you astray because they’re often misguided or operating from high-minded theories, rather than on-the-ground experience.

(Shortform note: What exactly is a professional investor? The term can apply to [day traders, people who trade stocks in their portfolios as a career and chief source of...

One Up On Wall Street Summary Understand Six Truths Before You Invest

Even though you’re equal to or better than any professional investor, you must be aware of certain key truths to have success and feel in control on the stock market, stresses Lynch.

Truth #1: There’s Inherent Risk Involved in Investing

Investing is inherently risky—if you’re not OK with that risk, you probably shouldn’t invest, writes Lynch. You may not make a huge return each year, and some years, you may even lose money. However, if you understand this, you can develop the discipline and resilience to stick with your stocks through their ups and downs (rather than selling at the first sign of a downturn), thereby increasing your chances of making a good return on your investment.

(Shortform note: To increase your tolerance for risk in the marketplace, consider allocating some money toward an emergency fund or short-term savings account. Having such a fund provides peace of mind when the market’s doing badly and keeps you from rashly withdrawing investments, which Lynch warns against. Your emergency or short-term fund should contain enough money to support you for three to six...

One Up On Wall Street Summary Where and How to Encounter Strong Investment Opportunities

Now that you understand how to regard and interact with the stock market, start looking for investment opportunities. Lynch believes you’ll find the best investment opportunities in the places most familiar to you: daily life and work. Familiar companies are best to invest in because you have the greatest odds of understanding them and how well they’ll perform.

For instance, if you regularly order house plants from a great online plant store, you have a strong knowledge of that company, which might make its stocks worth investigating. Similarly, if at work, you deal often with a great printing company, you have inside knowledge of that company—an advantage in deciding if you should invest.

Conversely, Lynch strongly warns against investing in companies you don’t understand, trendy companies everyone else is investing in, companies that are diversifying, or companies that supply to only a single buyer. Such companies are likely to fail sooner or later.

(Shortform note: Not everyone agrees with Lynch about investing in companies you know. In Benjamin Graham’s The Intelligent Investor, financial journalist Jason...

One Up On Wall Street Summary How to Assess and Research a Company

Lynch advises that once you’ve discovered an interesting and viable company, don’t invest right away. First, conduct sound research. This should only take a few hours per stock.

(Shortform note: Others feel you might need to spend more time than a few hours on each stock: To become a true home-grown stock analyst, you might also wish to research a company’s suppliers, customers, and competitors—a process that could take days or weeks.)

Do this in several steps:

Step 1: Determine What Type of Stock It Is

The first step of your research is to determine what type of stock you’re looking at, writes Lynch. This is because you might only want to buy a certain type of stock now based on your needs and risk tolerance—for instance, you might reduce risk by investing in a dependable company.

(Shortform note: Rather than letting your current needs and risk tolerance determine what type of stock you buy, investment expert Benjamin Graham proposes determining if you’re an aggressive investor or a _[defensive...

One Up On Wall Street Summary How to Manage a Stock Portfolio Over Time

You may by now have purchased your first stock, which means it’s time to begin thinking about building a long-term stock portfolio. Let’s look at Lynch’s advice on how to manage a portfolio over a lifetime.

Buy as Many Stocks as Companies You Understand

Lynch believes you should buy as many stocks as you feel you have special knowledge in or which you’ve thoroughly researched and have faith in. For instance, if you work in the automotive industry, you might have special knowledge about a car manufacturer, or you’ve done extensive research on a new coffee shop chain that’s opened in your area, and you feel confident about its prospects. You’d thus buy stocks in both.

(Shortform note: There’s another compelling reason to buy stocks in only companies you have special knowledge about: Advisors and analysts who claim to understand more than you do about a company usually obtain their information from the company itself. These company performance forecasts are 1) often merely estimates and 2) often inflated to make the company look good.)

If you want a specific number,...

Shortform Exercise: Find and Research a Potential Investment

Practice using Lynch’s strategy for finding and researching potential investments.

Think back to the last few days: Did you encounter any companies whose product or service piqued your interest? Do any of these companies have one or more of Lynch’s preferred traits—does it have a mundane name or business, exist in a no-growth industry, or is it a spinoff of an existing company? You don’t have to do in-depth research for this exercise—simply jot down your thoughts about the company that seems most promising to you.