The key ideas

One Up On Wall Street

Peter Lynch, John Rothchild, 1989

Can you spot a great company before the professionals on Wall Street do? Peter Lynch, who ran the Magellan fund for thirteen years, is sure you can, as long as you keep your eyes open and take the trouble to check what you see. He shows how to find ideas in everyday life, sort companies into six kinds, and decide when to hold a stock and when to walk away.

Who it is for

For anyone thinking about buying stocks who wants to see how one of the most successful fund managers picked companies. And for anyone curious how everyday observations turn into an investment idea.

Selling your winners and holding your losers is like cutting the flowers and watering the weeds.

The boy who carried clubs for the head of Fidelity

A teenager from outside Boston works as a caddie at a golf club. He carries clubs for wealthy players and listens to what they talk about between holes. And what they often talk about is stocks. One of the men he followed around the course was George Sullivan, president of the investment firm Fidelity. A few years later, that connection helped the young man land a summer job there, even though dozens of students were after the same spot.

While still in college, he put a thousand dollars into an air freight carrier called Flying Tiger. Then the Vietnam War began, the company started flying troops and cargo, and the stock rose several times over. He sold part of it and used the money to pay for business school at Wharton. That young man was Peter Lynch. From 1977 to 1990 he ran the Magellan fund, one of the most successful funds of its time.

In 1989, Lynch and John Rothchild wrote One Up On Wall Street. Its idea sounds bold coming from a professional money manager: an ordinary person who works, goes shopping and keeps their eyes open can spot a great company before the professionals do. But spotting it is only the start. Then comes the homework, and most of the book is about that.

This is one investor's method, not personal advice for you. The examples in the book come from the 1980s. Yet the way Lynch thinks has not aged. You will learn where he looked for ideas, how he sorted companies into six kinds, why he loved dull names, which stocks he avoided, what the two-minute story is, and when, in his view, to hold a stock and when to walk away.

Pantyhose sold next to the milk

In the 1970s, Lynch's wife Carolyn came home from the supermarket with a new pair of L'eggs pantyhose. They were made by Hanes, and they were sold not in a department store but by the checkout of an ordinary grocery store, where women already went every week. Carolyn liked them and kept buying them. Lynch got curious and started looking into the company.

He saw something that is easy to miss from an office desk. The quality matched what you would find in a department store, but you could pick them up between the bread and the milk. People buy a product like that again and again, and they never have to go looking for it. Lynch bought Hanes stock for his fund. The story ended sooner than he wanted: the whole company was bought by Consolidated Foods, and shareholders had to give up a stock that still had room to grow.

This story holds the central idea of the book. An ordinary shopper sees a product take off before the analyst does, because they see it in their own shopping cart. The same goes for work: someone inside an industry notices before anyone else that a supplier's orders are up or that a new product is selling better than the old one.

Lynch calls a stock that goes up tenfold a tenbagger, and he believes an amateur can find one close to home: at the mall, in a café, at their own job. You do not need inside secrets. You need to pay attention to what you already see every day, and to get in the habit of asking who is making money from whatever has suddenly caught on.

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About the author

Peter Lynch is an American investor who managed Fidelity's Magellan fund from 1977 to 1990. John Rothchild is a writer on finance and co-author of several of Lynch's books.

All books by this author: Peter Lynch, John Rothchild

Terms from the book

  • Caddie
  • dividend
  • Sullivan
  • Wharton
  • Diversification
  • Fidelity: A Boston investment company that manages mutual funds. Lynch spent his whole career there.
  • Flying Tiger: An American air cargo carrier. Its stock was Lynch's first winning purchase.
  • Magellan: Fidelity's mutual fund, which Lynch managed from 1977 to 1990.
  • Rothchild: John Rothchild, an American writer on finance and Lynch's co-author.
  • Carolyn: Carolyn Lynch, Peter Lynch's wife. Her purchase of L'eggs pantyhose led him to one of his best-known ideas.
  • L'eggs: A pantyhose brand from Hanes, sold in supermarkets from the early 1970s in its distinctive egg-shaped package.
  • Hanes: An American maker of underwear and hosiery that produced the L'eggs brand.
  • Tenbagger: Lynch's word for a stock that has gone up tenfold in price.
  • Consolidated Foods: The American corporation that bought Hanes.
  • Slow growers: A kind of company in Lynch's classification: large, mature firms whose earnings grow slowly and which people hold for the dividends.
  • Stalwarts: A kind of company in Lynch's classification: large, well-known firms whose earnings grow at a moderate but steady pace.
  • Fast growers: A kind of company in Lynch's classification: usually small firms that are expanding quickly. This is where he hunted for tenbaggers.
  • Cyclicals: A kind of company in Lynch's classification: firms whose earnings rise and fall with the ups and downs of the economy.
  • Asset plays: A kind of company in Lynch's classification: companies sitting on something valuable that the market has not counted in their price.
  • Pep Boys: An American chain of auto parts stores and repair shops. Lynch cites its full name as an example of a dull name.
  • Diworseification: Lynch's pun: a company buying up businesses unrelated to its own, which makes it worse rather than stronger.
  • P/E: The ratio of a stock's price to the company's earnings per share. It shows how many years of current earnings a buyer is paying for.

All terms

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