One Up on Wall Street

Lynch argues that individual investors hold advantages over professionals and should use them. He ran Fidelity's Magellan Fund from 1977 to 1990, compounding at about twenty-nine percent a year, and the book explains the approach in terms aimed at a non-professional audience.

His central practical claim is that ordinary people encounter promising companies through their work and their shopping long before Wall Street analysts cover them, and that this observation is the starting point for research rather than the conclusion. He is explicit that noticing a product is not a reason to buy the stock, and that the observation must be followed by examining earnings, debt, inventories and the price to earnings ratio relative to growth.

Lynch classifies stocks into six categories, slow growers, stalwarts, fast growers, cyclicals, turnarounds and asset plays, and argues that each requires a different expectation and a different exit rule. He gives lists of attributes that make a company attractive, including a dull name, a boring or disagreeable business, a spinoff, low institutional ownership, insider buying and company share repurchases. He also lists warning signs, including hot stocks in hot industries, diworsification through unrelated acquisitions, and dependence on a single customer.

The book is dated in its data sources, since it assumes annual reports, brokerage research and library work rather than online screening. The retail advantage it describes has narrowed with universal information access. Lynch's own record ran through an exceptional bull market with a fund that grew from twenty million to fourteen billion dollars, which raises questions about attribution. The category framework and the discipline of doing the work after the observation remain useful.

Manager, Fidelity Magellan Fund 1977-1990

A documented 29% annualized record at Magellan plus three books that outlived their news cycle and put 'buy what you know' into general use.

Fidelity Magellan Fund