Enterprising Investor Forum

One Up on Wall Street, Peter Lynch Wednesday, June 20, 2007

It is refreshing to see a Wharton graduate, great fund manager and Wall Street legend demystifying the investment world. Like Warren Buffett, Lynch is a quintessential value investor and has a very clear and simple way of expressing his views and strategies.

His mantra is “… average investors can become experts in their own field and can pick winning stocks as effectively as Wall Street professional by doing just a little research.”

In fact, he maintains that the average investor is in a better position than the professional as he is free to invest in whatever company presents the best opportunity and does not have to justify the decision to anyone. A professional will never be questioned for investing in a Blue Chip company that does poorly (he could always blame the economy, the management or unexpected events) but funnily enough, he would have a difficult task explaining why he invested in a Small Cap with excellent fundamentals that did poorly. Taken to an extreme, as Keynes put it: “Worldly wisdom teaches that it is better to fail conventionally that to succeed unconventionally.”

Lynch also talks about how people always forget to focus on what they know (i.e. a doctor would recommend an IT stock to a friend who is and IT specialist and in turn, the friend would recommend a drug stock to the doctor); do not forget to leverage your knowledge and competence! The book is full of check lists, rules and advice – some of them are:

• Don’t overestimate the skill and wisdom of professionals.
• The average person is exposed to interesting local companies and product years before the professionals.
• Invest in a house before you invest in a stock.
• Invest in companies that sound dull and operate in boring industries.
• Large profits can be made in common stocks.
• Large losses can be made in common stocks.

In essence, the book is a no nonsense look at value investing focusing on fundamentals, taking a long-term approach to portfolio management and avoiding hype through solid research. It really is a must read for any investor.

Enjoy!