Beating the Street – Peter Lynch

In this post, I will present the top 5 takeaways from Beating the Street, a book on stock picking by the legendary investor and manager of the Fidelity Magellan mutual fund, Peter Lynch.

Focus on the “Even Bigger Picture”

  • Stocks go through numerous cycles
  • Don’t panic on the market lows and look at the biggest picture
  • The key to making money in stocks is not to get scared out of them
  • During the last 60 years, stocks have outperformed bond 3.5 to 1 per year

Making Money in Stocks is a Combination of Science, Art and Legwork

  • Science: investigating the numbers in financial statements => growing sales, reasonable price, low debt, share buybacks
  • Art: what cause earnings in the past and triggers that can cause them to grow in the future
  • Legwork: Stay busy and keep updated on the company

Use the “Earnings Line” to Identify Buying Opportunities

  • Sales + Earnings must be increasing
  • Must buy when it’s relatively cheap
  • Development of stocks price will move relative to their earnings
  • Value line = What the stock should be priced if PE = earnings annual growth

Search for Overlooked Stocks with Strong Owners

  • When even the analysts are bored, it’s time to start buying
  • Founders typically own a large portion of the shares; therefore, management and your interest are aligned
  • Look for owners who have succeeded before
  • Stay away from owners who are institutional players

Look for Great Companies in Lousy Industries’

  • Invest more in energy, metals, and oil rather than internet, software and life sciences
  • Because strong industries attract strong competition