There aren’t that many truly successful investors out there, the sort known for succeeding year after year, making huge amounts of money, and providing tips that the rest of us can follow to imitate their success. Between the difficulty in getting anywhere near that level of success, the trouble in doing so in a manner that is universally recognized, and of course, avoiding all the political issues that arise, the list of highly successful investors agreed upon by everyone is always short. Still, it is widely acknowledged that any such list should include among its members such people as Benjamin Graham, Warren Buffett, and Peter Lynch.
Beating the Street, a book by Lynch, is then one of a rare few in the investing world, a book from a genuinely great investor. A follow-up to his One Up on Wall Street (which I reviewed before (in mini form)), it shares many stories with individual investors, which will hopefully help them achieve the same level of success as he did at the Fidelity Magellan Fund from 1977 to 1990. Does it provide plenty of good advice, or does Lynch rest on his laurels following his success? Let’s read on!
Beating the Street opens with a Preface, where Lynch shares why he decided to leave the Magellan Fund, and start putting his accumulated net worth to work for him, rather than continue to focus on increasing it. The paperback then has a second Preface, where Lynch confronts some of the misconceptions that people seem to have about the book, and about his investing philosophy in general; issues like Lynch encouraging everyone to buy individual stocks and to not buy mutual funds at all are put to rest.
While he’s on the subject of disproving false notions, the Introduction of the book attempts to prove once and for all that investing in stocks will leave you (in the long run) in a better financial position than keeping your money in bonds or other ‘safer’ investments. It also shares the subjects of the rest of the chapters, providing a short guide about upcoming topics to those reading. Â The first chapter of the book looks at students at St. Agnes School in Arlington, Massachusetts, who in seventh grade are split into teams of four and have to pick stocks, as part of their Social Studies class. They had pizza with Lynch, and shared numerous hints and tips (passed on in the book) on how they chose their particular stocks for class. It also shares some of the choices that the students chose in their (more successful that 99% of all professionally managed funds) investments.
Chapter two looks at the ‘weekend worrier’, discussing how taking too much time to worry about what has already happened can leave your portfolio in even worse shape. The third chapter, one of the longest in the book, looks at mutual funds. It starts by sharing some of Lynch’s reasons for preferring stocks over bonds (not only for capital growth, but for income generation), and why he would suggest most people keep all their money in stocks (or stock funds). The bulk of the chapter then looks at some of the different types of funds out there, and provides some advice on building up a decent fund portfolio.
Chapters four, five, and six discuss Lynch’s time at Fidelity, running the Magellan Fund. From his early years in the late seventies (Chapter Four) to the re-opening of the fund and its growth in the early eighties (Chapter Five) to his last years at Fidelity, handling the increasingly large Magellan Fund (Chapter Six), it’s all here. If you were ever curious about Peter Lynch’s professional life, you get more than a little behind the scenes look here.
The next fourteen chapters (Chapter Seven through Chapter Twenty) looks at the 21 stocks Lynch recommended in January 1992 in Barron’s, and discusses how he came to choose each one. Chapter seven starts out by looking at where the market stood at the end of 1991, when Lynch was making these selections, and how he believes that if you look at enough companies, you’ll find more than a few good prospects to consider, even in an overpriced environment like the end of 1991. He also discusses how he evaluates the ‘story’ for each stock he chose, his preferred method of choosing an investment.
Chapter eight looks at how he viewed the retail market, looking at the various shops out there to find the most appealing one. (If you’ll excuse me, I’m not going to share all his suggested stock picks; I’m doing this partially to save time, partially because these selections are over two decades old and I don’t want to imply that Lynch (or myself, for that matter) still recommends them.) Chapter nine looks at finding good companies in fields that have been hit by bad news; in Lynch’s case, this meant using the real estate market downturn in the early nineties (eery, hunh?) to find several good companies in fields like home decorations and lawn and garden supplies.
The tenth chapter covers how he came up with a hair salon as a good investment; as people will always need a place to get their hair cut, finding a high quality one seemed like an excellent investment. Chapter eleven covered how to find companies that were absolutely dominating their markets, the ‘Blossoms in the Dessert’ that were thriving while everything around them was withering. Chapter twelve covers Savings and Loan companies, discussing the S&L scandal in the eighties that still had people worried about the industry, and how there were more than a few good companies that had their names dragged through the mud through no fault of their own The thirteenth chapter looks closer at the seven Savings and Loan companies he recommended in 1992, providing more detail on each.
The fourteenth chapter looks at Master Limited Partnerships, another investment area that sometimes gets a bad wrap, and comes up with two investment ideas there. Chapter fifteen is about cyclicals, stocks that tend to grow and fall in value in cycles, and suggests two automakers that were ripe for growth. The sixteenth chapter looks at utility stocks, and suggests one nuclear company as a good investment.
Chapter seventeen looks at situations where the government is selling businesses that had been run by the government as private companies, and recommends buying during most such situations (giving an example, of course). Chapter eighteen is possibly the most dated in the book, suggesting the purchase of Fanny Mae stock and giving reasons why it is a solid investment (again, these suggestions date back to 1992; don’t assume that Lynch would still recommend it).
The nineteenth chapter looks at mutual funds in an interesting way, considering the companies that run the mutual funds as possible investments, in and of themselves, and suggesting one as an investment. Chapter twenty rounds out the list of suggested stock investment options by looking at restaurants, and discussing how to put your money where your mouth is, in a good way.
Chapter twenty-one provides a six-month check-up, discussing how the twenty-one stocks selected in the previous thirteen chapters had performed, and giving suggestions on how to perform your own such check-up when the times arrived. There’s then a list of twenty-five golden rules Lynch recommends for individual investors. The paperback edition closes out with a Postscript that looks at where the twenty-one recommended stocks stand two years after being recommended, and what has changed with them in the preceeding 24 months.
Beating the Street is a pretty interesting look at Peter Lynch’s life, and provides plenty of insight into just how he picks stocks, for the Magellan Fund or more recently, for various recommendations. It provides quite a bit of advice, in the ‘Peter’s Principles’ scattered throughout the book and in the golden rules at the end.
About two-thirds of the book consists of some very dated stock selections, and another sixth of the book is Lynch’s history; if you bought this looking for real investmentÂ advice, you’re a bit out of luck. The stock selection portion, in particular, tends to focus much more on why those particular stocks are great investments, rather than how to find similar investments in the future. Â It’s more history that investment advice, all in all.
Beating the Street is a decent overview of Peter Lynch’s life while working at Fidelity, and does pass along some of his investment advice. That said, it’s definitely lighter on investing advice than you might assume (and the back cover implies). If you are looking to learn more about Peter Lynch’s way of thinking, it’s helpful; but for actual investing advice you can apply now, you should probably look elsewhere (potentially in One Up on Wall Street).