Peter Lynch was a legendary money manager of the Fidelity Magellan Fund- $1000 invested into the fund in 1977 was worth $28,000 in 1990. He has since retired from the Magellan Fund and he also wrote One Up on Wall Street. He averaged an annual 29% return while he managed the Magellan Fund. He also is known for coining the phrase “ten bagger” or “two bagger” in which a stock’s price becomes 10 times the purchase price, or two times the purchase price, respectively.
Beating the Street was a very easy read. He starts the book off by talking about how the average investor fails at investing due to weekend worrying (panicking over the weekend and selling stocks on Monday) and how people just head into investing without realizing that they are buying shares in a company (something that Warren Buffett also says). He also talks about how you can make a lot of money in the stock market, but that you can lose a lot of money too. And you have to have even more return to get to where you were if you lost money. Basically, he reinforced that investing can be difficult and that people need to invest in what they know rather than gamble with their money.
He explains how he selected his stocks for the mutual fund company, and his strategy is very grassroots. He often traveled around the world to visit businesses and he also made a lot of phone calls to speak to the managers and owners of the company. He went to Europe and he drove around the United States, often mixing his family trips with his investing trips. He invested in what he knew and strayed away from things that he didn’t.
Beating the Street Pros
I really liked his writing style. It was easy to read, with no fluff, and very to the point. He’s pretty funny. He tells it like it is. He explains how he invests and even shared some funny stories and experiences (like how he went for a haircut at Supercuts).
He explains how his children and their children can invest in the market, by investing in what they know. He says to never invest in anything that you can’t draw with a crayon. He says you should be able to explain the business to a 10-year-old.
I also liked how he talked about companies that grew from obscurity to being the biggest companies in the business and dominating the market share (for example, Lowe’s, Volvo, Ford, Pier 1 Imports, and The Body Shop). I liked how he talks about timing- for example, Chrysler was a beat-up stock but they were introducing the Chrysler Minivan (as a kid, all I remember are the road trips we did in the trusty blue Chrysler minivan) which changed the market because everyone had one
Beating the Street Cons
Perhaps because I’m more of a blue-chipper and indexer investor and I stray away from (well now, anyway because I used to always want to hear the next hot stock tip) obscure names, I found that some of the stocks he recommended such as Supercuts or Pier 1 Imports, and even Fannie Mae (one that he made a lot of money for his fund) made me feel a little uncomfortable. For example, Tye Federal National Mortgage Association, or Fannie Mae, after the 2008 fiasco, was $80+ and now it is a little over $1.50. He encourages investment in smaller companies (which makes sense if you’re looking for a ten-bagger) and that this is the way to make money in the stock market.
The other downside to this book is that when reading the book, you can tell that it is over 20 years old. The companies he recommended (this book was written in 1993) are now not doing that well or are out of business. I feel that this book is a little outdated.
All in all, this book was an easy read and I think I would recommend it for someone interested in investing and for those who want to take the plunge from investing in index funds to investing individual stocks (perhaps in a small portion of that portfolio!).
Readers, have you read Beating the Street? What did you think of it?