One up on wall street ~Peter-Lynch

What I hope you’ll remember most from this section are the following
points:
• Don’t overestimate the skill and wisdom of professionals.
• Take advantage of what you already know.
• Look for opportunities that haven’t yet been discovered and certified by Wall
Street—companies that are “off the radar scope.”
• Invest in a house before you invest in a stock.
• Invest in companies, not in the stock market.
• Ignore short-term fluctuations.
• Large profits can be made in common stocks.
• Large losses can be made in common stocks.
• Predicting the economy is futile.
• Predicting the short-term direction of the stock market is futile.
• The long-term returns from stocks are both relatively predictable and also far
superior to the long-term returns from bonds.
• Keeping up with a company in which you own stock is like playing an
endless stud-poker hand.
• Common stocks aren’t for everyone, nor even for all phases of a person’s
life.
• The average person is exposed to interesting local companies and products
years before the professionals.
• Having an edge will help you make money in stocks.
• In the stock market, one in the hand is worth ten in the bush.
Here are some pointers from this section:
• Understand the nature of the companies you own and the specific reasons
for holding the stock. (“It is really going up!” doesn’t count.)
• By putting your stocks into categories you’ll have a better idea of what to
expect from them.
• Big companies have small moves, small companies have big moves.
• Consider the size of a company if you expect it to profit from a specific
product.
• Look for small companies that are already profitable and have proven that
their concept can be replicated.
• Be suspicious of companies with growth rates of 50 to 100 percent a year.
• Avoid hot stocks in hot industries.
• Distrust diversifications, which usually turn out to be diworseifications.
• Long shots almost never pay off.
• It’s better to miss the first move in a stock and wait to see if a company’s
plans are working out.
• People get incredibly valuable fundamental information from their jobs that
may not reach the professionals for months or even years.
• Separate all stock tips from the tipper, even if the tipper is very smart, very
rich, and his or her last tip went up.
• Some stock tips, especially from an expert in the field, may turn out to be
quite valuable. However, people in the paper industry normally give out tips
on drug stocks, and people in the health care field never run out of tips on
the coming takeovers in the paper industry.
• Invest in simple companies that appear dull, mundane, out of favor, and
haven’t caught the fancy of Wall Street.
• Moderately fast growers (20 to 25 percent) in nongrowth industries are ideal
investments.
• Look for companies with niches.
• When purchasing depressed stocks in troubled companies, seek out the
ones with the superior financial positions and avoid the ones with loads of
bank debt.
• Companies that have no debt can’t go bankrupt.
• Managerial ability may be important, but it’s quite difficult to assess. Base
your purchases on the company’s prospects, not on the president’s resume
or speaking ability.
• A lot of money can be made when a troubled company turns around.
• Carefully consider the price-earnings ratio. If the stock is grossly overpriced,
even if everything else goes right, you won’t make any money.
• Find a story line to follow as a way of monitoring a company’s progress.
• Look for companies that consistently buy back their own shares.
• Study the dividend record of a company over the years and also how its
earnings have fared in past recessions.
• Look for companies with little or no institutional ownership.
• All else being equal, favor companies in which management has a
significant personal investment over companies run by people that benefit
only from their salaries.
• Insider buying is a positive sign, especially when several individuals are
buying at once.
• Devote at least an hour a week to investment research. Adding up your
dividends and figuring out your gains and losses doesn’t count.
• Be patient. Watched stock never boils.
• Buying stocks based on stated book value alone is dangerous and illusory.
It’s real value that counts.
• When in doubt, tune in later.
• Invest at least as much time and effort in choosing a new stock as you would
in choosing a new refrigerator.

If you take anything with you at all from this last section, I hope you’ll
remember the following:
• Sometime in the next month, year, or three years, the market will decline
sharply.
• Market declines are great opportunities to buy stocks in companies you like.
Corrections—Wall Street’s definition of going down a lot—push outstanding
companies to bargain prices.
• Trying to predict the direction of the market over one year, or even two
years, is impossible.
• To come out ahead you don’t have to be right all the time, or even a majority
of the time.
• The biggest winners are surprises to me, and takeovers are even more
surprising. It takes years, not months, to produce big results.
• Different categories of stocks have different risks and rewards.
• You can make serious money by compounding a series of 20–30 percent
gains in stalwarts.
• Stock prices often move in opposite directions from the fundamentals but
long term, the direction and sustainability of profits will prevail.
• Just because a company is doing poorly doesn’t mean it can’t do worse.
• Just because the price goes up doesn’t mean you’re right.
• Just because the price goes down doesn’t mean you’re wrong.
• Stalwarts with heavy institutional ownership and lots of Wall Street coverage
that have outperformed the market and are overpriced are due for a rest or a
decline.
• Buying a company with mediocre prospects just because the stock is cheap
is a losing technique.
• Selling an outstanding fast grower because its stock seems slightly
overpriced is a losing technique.
• Companies don’t grow for no reason, nor do fast growers stay that way
forever.
• You don’t lose anything by not owning a successful stock, even if it’s a
 tenbagger.
• A stock does not know that you own it.
• Don’t become so attached to a winner that complacency sets in and you
stop monitoring the story.
• If a stock goes to zero, you lose just as much money whether you bought it
at $50, $25, $5, or $2—everything you invested.
• By careful pruning and rotation based on fundamentals, you can improve
your results. When stocks are out of line with reality and better alternatives
exist, sell them and switch into something else.
• When favorable cards turn up, add to your bet, and vice versa.
• You won’t improve results by pulling out the flowers and watering the weeds.
• If you don’t think you can beat the market, then buy a mutual fund and save
yourself a lot of extra work and money.
• There is always something to worry about.
• Keep an open mind to new ideas.
• You don’t have to “kiss all the girls.” I’ve missed my share of tenbaggers and
it hasn’t kept me from beating the market.