Aw, book reviews; one of my favorite parts of being a personal finance blogger. While I’m getting back into the swing of things (and trying to figure out how best to balance graduate studies, graduate work, and blogging), let’s have a mini-review of a mini-book to get things started. The One up on Wall Street: Miniature Edition by Peter Lynch provides a short introduction to individual stock investing. How well does it prepare you for the big plunge?
Three Sentence Summary: Before you get started investing, be sure you have the rest of your financial life in order. There’s several types of stocks that can prove to be ‘ten-baggers’, each having different characteristics. There are lots of possibilities in investing, and it’s important to take a long-term view while investing.
In-Depth Summary: Lynch starts by telling readers how to prepare for individual stock investing. Quite a bit of the preparation is mental, having a plan for your investing and having the patience, humility, and detachment to succeed as an investor. He also maintains that would-be investors should buy a house if they want before individual stock investing and that they shouldn’t invest any money that would cause any material harm if it were lost.
The second chapter covers the investment process itself. Lynch suggests looking around you to find small but growing companies that could become ‘ten-baggers’ (stocks that grow ten-fold while you own them; it’s one of Lynch’s favorite expressions). Lynch lists six types of stocks that can end up making you a lot of money: slow growers, large companies that show limited growth; fast growers, small, fast-growing companies; cyclicals, whose growth and profits tend to fluctuate in cycles; turnarounds, where companies on the brink come back from the edge; and asset plays, companies that profit primarily from the production of a single asset (like oil or gold). The chapter ends with a list of hints on improving your stock picking techniques.
The book finishes with a few thoughts on taking a long term view and when to sell your stocks. Lynch only recommends owning as many stocks as you have an edge and your research bears out the suitability of the stock. Most of the chapter is devoted to what circumstances warrant the sale of each type of stock. The book ends with twelve silly things that people say about stocks and stock investing, from being able to tell when a stock has hit bottom to waiting for a rebound to sell.
Pros: Well-written, interesting book on investing from one of the experts in the field. Not a bad crash core in investing in individual stocks. More than a little bit of Lynch’s humor present throughout.
Cons: Not that much help for individuals who don’t want to (or don’t have the time to) invest in individual stocks (other than one reference for such individuals to put their money into a mutual fund near the end of the book). The miniature format means that there is limited information; even on the subject of individual stocks, there much more than can be covered in a 5 cm square book with only 95 pages.
Overall:One up on Wall Street: Miniature Edition provides a basic introduction to stock investing, although the short format means there’s a limit to how much information can be passed on. You might want to get the full-version, as I’m planning, if you really want to get Lynch’s view on investing; the mini-book, while a good and interesting read, is far from all that you need.