Investing Wisdom From The Real Investor Yogi- Peter Lynch from his book One Up On Wall Street
Lynch was the most successful fund manager of his time in the US, managing Fidelity- The mutual fund company.
The takeaway in this book is that it will not confuse you with a lot of numbers. Lynch who himself did B.A in his graduation was not keen of numbers. He always thought that to buy a good company, all you need to know is the prospects of the company rather than the financial statements. The book is based on Lynch’s real life incidents. The book has story style of narration, which makes the read very interesting and full of learning experience, especially for beginners.
Moreover, readers are clearly guided on how to get off to an impactful start in the stock market.
One Up On Wall Street gives the wisdom and experience from one of the greatest money managers of all time.
Through Lynch’s real experiences, the readers get to know that just like them, Lynch was also a normal guy, one of the mango people. He believes in himself and does his independent research on companies. Just like a curious kid, he asks a lot of questions, and maybe sometimes gets caught in the wave of the market at times, just like anybody.
Investor Yogi strongly recommends Peter Lynch’s One Up On Wall Street for beginners in investing, before they ever make their debut purchase in the stock market.
Peter Lynch’s TOP 10 Investing Lessons
Though the book had a ocean of lessons to be learnt, we have collated TOP 10 lessons from Mr Lynch’s book. These are:-
1. WHY this stock?
Normal people buy a particular stock when the see its price increasing. This may work only for a short period of time. On the other hand an Investor Yogi will always understand the nature of the business before buying a stock. A stock is a share in the business. If you don’t know about that business, then you will never be able to guess the collapse of the pillars on which the business was standing, which shall make you loose all your money. An investor Yogi shall have specific reasons to buy and hold the stock, which again will depend on the pillars of the business rather than its price.
2. Everyone loves product X, lets buy the company making the product X :- WRONG.
An Investor Yogi will always consider the contribution of the specific product to the company’s profit when relying on that particular product to buy the company’s shares.
You may say that you love Cadbury chocolates, hence Mondelez is a definite buy. WRONG! You must first know the profit contributions of Cadbury chocolates in the entire portfolio of products offered by Mondelez. It may be so that Cadbury chocolates are only contributing 2% in the company’s revenue, which in turn should direct you to re-think your investment decision.
A great product should definitely be considered as a potential investment, but as an Investor Yogi, checking the magnitude of the product in the company’s profits should be the ruling decision.
3. 50-100% company growth a year? Are you kidding me ?
An Investor Yogi will always be suspicious of the companies that are growing at a rate of 50-100% annually.
An Investor Yogi knows, that such high growth cannot be upheld for long. Its competition will always want to take the market share of a growing industry.
Another reason to be suspicious is the requirement of capital for growing business. Such high growth rate will demand simultaneous increase in capital requirement. This shall either be executed by increasing debt or diluting equity by issuing new shares, both of which are bad for the existing shareholders.
Not only this, slowdown in the market shall make the company vulnerable to the maximum impacts, leading to sharp fall in the stock price.
4. Diversification = Diworsefications (Term introduced by Mr. Lynch)
An investor Yogi shall distrust diversification, which mostly turn out to be disworsefication. Disworsifiation refers to the loss to the companies because of the unplanned, un-strategic and un-reasonable acquisitions by a company. Mr Lynch states that such deals are done to satisfy the egos of the promoters and not for the real benefit of the company. Hence, diversification often leads to disworsefication.
5. Employee in industry X, buying shares of companies in industry X > Employee in industry A, buying shares of companies in industry X
An Investor Yogi knows that insiders to an industry get impactful fundamental information from their jobs that may reach an outsider after months or maybe even more than that.
Just as a fish shall know any discrepancy in the water, maybe years before a human knows it. Same is the case in investing. Inferring this, a fish shall be a fool to judge the quality of air in the atmosphere, same is the case of a person working in the banking industry to buy a share in the pharma industry, especially when he is unaware of that industry.
Note:- One must always aim higher. The fish shall study, understand and buy the share of the air industry but her prime focus should be the water industry.
6. Reject all stock tips, even though the tipper = very smart, very rich, his last tip went up
You never know how much weight the tipper is giving to the stock he is recommending, in his portfolio. It may be just 0.2% of his portfolio. In this case, a sharp decline in the stock won’t affect the tipper/advisor much, but you shall be doomed.
He may be perceived as a savior, since he invested only a little percentage of his portfolio in that stock and helped in saving the overall return.
No matter how prudent the fund manager is, an Investor Yogi shall always do his independent research on buying a stock before ever following the advise of the tipper.
7. Is the company Dull, Boring, Not so favorite, and haven’t been talked on the street? LETS BUY
Boring companies, which are not covered by the wall street analysts and media are available at a bargain. There is a great chance that these companies are available at their fundamental values. An Investor Yogi shall buy such companies to maximize his wealth in the long run, and definitely before they catch heat in the stock markets, making them expensive.
8. I never borrowed = I never owed anything to anybody = No Bankruptcy
Such companies, who have no debt shall never go bankrupt. Mr. Lynch clearly emphasizes on this point, when looking to buy a share. He emphasizes it to be the most important lesson.
Companies growing on borrowed money may appear good, since they are “growing”, but an Investor Yogi will be suspicious of such growth because often more than less, such companies are unable to handle growth and in turn mess up their balance sheet, eating away the little wealth of the shareholders being created in the growth years.
9. “Learning an hour a week, keeps the losses away.”
Mr. Lynch clearly emphasizes the power of independent research of investments in the prosperity of the investor. Just as a Yogi is consistent in the search of nirvana, an Investor Yogi is consistent in the search of financial knowledge.
10. Doubt = Not the current moment to invest.
An Investor Yogi is aware of the mental conditioning require to become an Investor Yogi. Magnitudes of mind controlling is required to become a successful investor, indeed an Investor Yogi. A Yogi never lets the market manipulate him. He is disciplined to take an informed decision, rather than flow with the forces of the market. He is determined to reach financial nirvana. He shall always wait , research, become sure of his decision and then finally invest.