One Up on Wall Street Summary

1-Sentence-Summary: One Up on Wall Street talks about the challenges of being a stock market investor, while also exploring how anyone can pick good, well-performing stocks without having much knowledge in the field, by following a few key practices.

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Being an investor is often made to look like a job reserved for geniuses. In One Up on Wall Street, Peter Lynch explains how anyone can beat renowned investors by using logic and common sense. It all comes down to putting your money into the companies that you understand. 

Instead of researching analyst ratings of businesses that take rocket science to understand, keep it simple. Look into your favorite donut shop. Is it a chain already? Should it be? That’s how ordinary people first discovered the Dunkin Donuts stock.

When it comes to investing, overcomplicating it can ruin your chances of having a successful portfolio. Simple, everyday stocks can be among the best-performing ones. But more goes into analyzing a stock, of course.

Here are 3 lessons from investing legend Peter Lynch to help you do that job as if you were being paid to do it:

1. There are 6 categories of stocks that you should know of.
2. If you’re looking for a tenbagger, there are 13 traits to consider.
3. There are 5 essential traits to avoid when investing in stocks. 

Let’s take these lessons one by one to become better investors!

Lesson 1: Be aware of the 6 categories of stocks, to know which one is best for you.

According to Peter Lynch, there are a few categories of stocks you should know before deciding where to put your money:

1. Slow growers.
2. Stalwarts.
3. Fast growers.
4. Cyclicals
5. Turnarounds.
6. Asset plays.

Let’s start with the first one – slow growers. These companies are usually large, part of a mature industry, and therefore grow slower.

Stalwarts are a little bit riskier. They’re growing at a rate of 10-15% per year. Sell them if you make a 30-50% percent gain!

Then, there’s fast growers. They break the patterns and grow significantly, making them risky investments, as they can also lose their current price very fast. These companies can prove to have a high return on investment.

When it comes to fast growers, always ask yourself: Can it keep up with this growth pace? Is this sustainable? If you find that the risk is too high compared to the company’s valuation, and that the market is just going crazy over it without a reliable reason, don’t go for it. 

Then, there’s cyclicals. These companies’ profits or losses move in concordance with the business cycle. One disadvantage of this type of stock is that they produce goods that consumers will postpone buying in times of financial uncertainty.

Fifth, there’s turnarounds, which are companies that have problematic balance sheets. Their stocks can prove to be a very rewarding investment if the business manages to bounce back. However, if the opposite happens, the risk of losing the value of your investment increases significantly.

Finally, asset plays are based on the idea that the company owns something valuable the market doesn’t see. It could be equipment or a piece of land or real estate that is worth the company’s entire market capitalization alone, for example.

Lesson 2: A tenbagger stock has 13 traits that make it easy to recognize.

What’s a tenbagger? Lynch uses this term to describe a stock that has gone up ten times its value since the time of purchase. Fortunately, there are some characteristics that make it easier for investors to spot these stocks.

The 1st one would be the name. Yes, you’ve heard that right, a funny or dull name can be a sign of a good early investment. If the company has a funny name, will Wall Street brokers be eager to brag about buying it? Not so much! 

The 2nd and 3rd characteristics are related to what the company’s doing. Does it do something dull or disagreeable? This indicates most investors aren’t going to buy it any time soon. The 4th characteristic is that it might be a spinoff of a larger company focused on doing one thing really well. Signal #5 is that institutions don’t own it, and analysts don’t follow it. It has yet to be discovered. 

Moreover, a company can prove to be a good investment if there are bad but unsubstantiated rumors circulating about it (6) or if there’s something depressing about it (7), such as a burial service business. Another good metric to consider is if its industry is currently stagnating (8). Also, look for companies with a niche (9).

Other good signs are if people have to keep buying the product (10) and if the company relies on fast-evolving technology (11). Finally, check if insiders are buying the stock (12) or if the company itself is buying back shares (13).

So, let’s recap the 13 traits of a potential tenbagger:

1. It sounds dull.
2. It does something boring.
3. It does something disagreeable.
4. It’s a spinoff.
5. Institutions and analysts don’t own/cover it yet.
6. Unsubstantiated rumors.
7. It does something depressing.
8. Stagnant industry.
9. Serves a niche.
10. Recurring customers.
11. Uses technology.
12. Insiders are buying.
13. The company does stock buybacks.

And what are some traits of stocks you should avoid at all costs? Let’s cover those next!

Lesson 3: Learn to spot non valuable investments by looking at 5 key indicators.

Just as you can spot good investment opportunities, you can learn to avoid the bad ones. The first thing you should look for is the industry. If it’s in a hot industry, avoid it, as the stock could be overpriced. The same applies if the stock is advertised everywhere as “The next Google/Amazon/Facebook.”

Next, look for too much diversification. Maybe the company is buying shares in non-related businesses from diverse industries. Also, be aware of their customer base. If the company is dependent on few customers, or on one single type, things can quickly go bad if they leave.

Lastly, watch out for whisper stocks. These companies advertise themselves as about to discover something miraculous or do something out of the ordinary that will blow their stock price. These are usually only cheap marketing practices that aim to lure people into buying a non-valuable share to pump up their price.

So, the 5 traits of stocks to steer clear of are:

1. Hyped industry.
2. Hyped in the media.
3. Too diversified.
4. One-sided customer base.
5. Big but potentially empty promises.

Apply Peter Lynch’s frameworks to your investing, and your portfolio is sure to thrive in the long run!

One Up on Wall Street Review

One Up on Wall Street has the potential to radically improve your finances, if you turn the knowledge into practice. This time-proven book can help any individual or institution spot valuable investment opportunities. Peter Lynch is not only one of the best investors of the twentieth century but also an excellent writer. You could do worse than get an education from him in just a few hours.

Who would I recommend the One Up on Wall Street summary to?

The 25-year-old investor who wants to invest and earn passive income, the 30-year-old looking to start a retirement fund early on, and anyone who’s curious about stocks and wants to indulge their passion.

Last Updated on March 22, 2024