Business Summaries - Beating The Street

The Big Idea

Peter Lynch ran the Fidelity Magellan Fund for more 20 years, during which time Magellan was the number one ranked general equity fund in America. His books One Up on Wall Street and Beating the Street are filled with his accumulated wisdom and in Beating the Street he gives a fairly detailed account of how he did his analysis.

The first thing that will strike new investors as strange is that Lynch's methods are actually so simple that mostly an amateur could use them entirely unchanged and with the same results. Lynch does not use any gimmicky computer programs, either to pick stocks or optimize the portfolio for volatility. Each and every company invested in by Magellan was considered on its own individual merits, and the managers of Magellan generally did their very best to completely avoid investing in anything that consensus opinion from the average Wall Street analyst declared was a good thing.

Lynch sums up his points in Beating the Street with a number of humorous "Peter's Principles", which appear here. Do take the time to read Beating the Street in its entirety though, as he makes a number of very interesting points throughout.

Peter's Principle #1

When the operas outnumber the football games three to zero, you know there is something wrong with your life.

This first point comes from the preface, where he is talking about how busy he was, regretting being unable to spend time with his family since he was too busy trying to keep current on a few thousand stocks.

Peter's Principle #2

Gentlemen who prefer bonds don't know what they are missing.

This one gets a going over in this FAQ in the separate "Bonds vs Stocks" article, Lynch just pointed out that bonds are an inferior investment to shares.

Peter's Principle #3

Never invest in any idea you can't illustrate with a crayon.

A class of seventh graders at an American primary school did a social studies project on stocks, the kids had to do their own research and dig up stocks for a paper portfolio. They sent their picks to Lynch, who later invited them to a pizza dinner at the Fidelity executive dining room, illustrating their portfolio with little drawings representing each stock. Lynch just loved this because it illustrates the principle that you should only invest in what you understand, the kids portfolio consisted of toy manufacturers, makers of baseball swap cards, clothing manufacturers and outlets, Playboy Enterprises (a couple of boys chose that one), Coke, and other stocks of that ilk. With a portfolio notably lacking in glamorous technology ventures and entrepreneurial risk taking they went for solid stocks with excellent profits, their portfolio returned 69.6% against a background of a 26.08% gain in the S&P500 in 1990/91. . . . . .

Book Summary Preview : Beating The Street

Book Summary Preview :
Beating The Street