Finance · 06
One Up On Wall Street
Peter Lynch
Everyday life can point you to good companies early, if you do the homework before you buy.
Five questions this book answers, each in a short piece. Read them, or listen as every word lights up.
Twice a week
What she saw at the checkout
Peter Lynch had studied textile factories and their finances. His wife, Carolyn, noticed something he had missed. L'eggs stockings were good, fit well, and came in plastic eggs near the supermarket checkout.
Women shopped for groceries about twice a week and visited a department store about once every six weeks. The eggs met them where they already were, with roughly twelve chances to buy for every one.
A pair of stockings went into the basket with the groceries.
Then the homework
The product is not the company
Carolyn knew why people bought the stockings. Whether to buy the shares was a different question, and it sent Lynch to research Hanes, the company behind L'eggs.
Find the owner first, then how much of its profits the product supplies. L'eggs mattered to Hanes. Pampers was a hit too, inside a Procter & Gamble so large that it moved the whole company less. Then check the debts and the price.
Hanes's shares rose sixfold before Consolidated Foods acquired the company.
The five questions
What to find out before you buy
In the order the book argues them.
- If safe investments can lose purchasing power, how much stock-market risk can you take without putting your next few years at risk?Can your money wait?Peter Lynch's first investing decision concerns the life your savings must support, and what could force you to sell.
- With limited research time, how can everyday experience beat professional expertise without turning familiarity into false confidence?What a familiar product cannot tell youPeter Lynch's everyday edge begins with noticing something useful. The investment depends on what you find out next.
- When exciting industries attract copycats, what makes an overlooked business worth owning, and what can it realistically deliver?Who keeps the profits when an industry grows?A carpet boom and a local rock pit explain why Lynch separates an industry's promise from a business worth owning.
- How much can you pay for a great business when its profits may be misleading and its future growth is already in the price?How much success have you already paid for?A growing company can be a losing investment. Peter Lynch works backward from its price, then checks what the profits leave for each owner.
- When prices crash or soar, what evidence should make you hold, buy more, or sell without sacrificing the few winners that drive long-term wealth?What would make you sell a winner?Peter Lynch's costly early sale shows why holding, adding, and selling each need evidence beyond the latest price move.
In plain sight
A head start, then the work
The Limited had busy stores in plain sight for years before institutions paid much attention. Shoppers had been able to judge those stores all along.
That head start is where Lynch begins. The homework after it decides whether you buy.
Start with question oneBuy the book
Published by Simon & Schuster. Cover shown to identify the book. Peter Lynch drawn as an editorial caricature.
