Disclaimer: This book was published in 1989. So, we have to time travel to understand a few things, but overall the concepts are still relevant. Also, read this during COVID-19 (middle of a global pandemic).
This review is a little different than other books. Going to share most of the notes as points.
Peter Lynch is America’s money manager. He was Vice-Chairman of the Fidelity Management & Research Company. He was the portfolio manager of Fidelity Magellan Fund, which was the best performing fund in the world from May 1977 to May 1990.
Chapter 1 - Preparing to invest:
- If you can follow only one bit of data, follow the earnings.
- Market cap = no. of outstanding shares * stock price of individual share
- You only had to find one big winner out of eleven. The more right you are about anyone stock, the more wrong you can be on all the others and still triumph as an investor.
- Keep your ears open (especially when your friends/family members say something).
- Don’t invest on companies which you don’t know.
- Author says professional investing is an oxymoron.
- Failure hurts more than success gives happiness.
- Stocks are most likely to be accepted as prudent at the moment they’re not.
- Peter gives an analogy of stock trading with Playing poker. Keeping up with a company in which you own stock is like playing an endless stud-poker hand. He says investment is a gamble in which you’ve managed to tilt the odds in your favor.
- Six out of ten is all it takes to produce an enviable record on Wall Street.
- He recommends buying a house first before investing. - Great advice.
- One of the tricks is not to learn to trust your gut feelings, but rather to discipline yourself to ignore them.
- The cocktail theory. (Like how everyone is talking about $MSFT).
- Don’t overestimate the skill and wisdom of professionals.
- Take advantage of what you already know.
- The average person is exposed to interesting local companies and products years before the professionals. (Yeah, I have been using Zoom $ZM since 2016. Know them well when they went IPO and I didn’t buy :sad smiley: )
- Common stocks aren’t for everyone, not even for all phases of a person’s life.
Chapter 2 - Picking Winners:
- Investing without research is like playing stud poker and never looking at the cards. (I need to look at myself in the mirror).
- Understand the nature of the companies you own and the specific reasons for holding the stock. (It is going up! doesn’t count).
- By putting your stocks into categories you’ll have a better idea of what to expect from them.
- Consider the size of a company if you expect it to profit from a specific product.
- Look for small companies that are already profitable and have proven that their concept can be replicated.
- Be suspicious of companies with growth rates of 50 to 100 percent a year. (I think he is talking about all the tech IPOs happening in 2020)
- Avoid hot stocks in hot industries. (I will stay away from $ZM for some time)
- Distrust diversifications, which usually turn out to be diworseifications. (diworseifications- the word he likes so much. Oh, another one is tenbagger. Man, this guy even in dreams scream tenbaggers !!)
- It’s better to miss the first move in a stock and wait to see if a company’s plans are working out.
- Invest in simple companies that appear dull, mundane, out of favor, and haven’t caught the fancy of Wall Street
- Moderately fast growers (20 to 25%) in nongrowth industries are ideal investments.
- When purchasing depressed stocks in troubled companies, seek out the ones with the superior financial positions and avoid the ones with loads of bank debt.
- Find a storyline to follow as a way of monitoring a company’s progress. (It’s like an elevator pitch for 2 minutes)
- Look for companies that consistently buy back their own shares.
- Study the dividend record of a company over the years and also how its earnings have fared in past recessions.
- Companies with little or no institutional ownership (I doubt how many of such growth companies exist these days)
- All else being equal, favor companies in which management has a significant personal investment and doing insider buying.
Chapter 3 - The Long-term view :
- Sometime in the next month, a year or 3 years, the market will decline sharply (This statement aged well)
- Market declines are great opportunities to buy stocks in companies you like.
- Trying to predict the direction of the market over one or two years is impossible.
- To come out ahead you don’t have to be right all the time, or even a majority of the time.
- Stock prices often move in opposite directions from the fundamentals but long term, the direction, and sustainability of profits will prevail.
- Just because a company is doing poorly doesn’t mean it can’t do worse and similarly because the price goes up doesn’t mean you’re right and vice versa.
- Buying a company with mediocre prospects just because the stock is cheap is a losing technique.
- If you don’t think you can beat the market, then buy a mutual fund and save yourself a lot of extra work and money.