Going one up

Soon after I finished college in 1990, something really exciting happened to me. If this was 2023, you could have expected this excitement to be finding a VC for some new business or some such thing.

You see, 1990 was a much duller time - my excitement was simply that I acquired a copy of Peter Lynch's book 'One Up on Wall Street'. I know that sounds trivial today, but this was a really fortuitous thing to happen. In those pre-internet days, the flow of information was much slower and harder, and this great book had just come out the year before. Lynch's book was like a primary education for me as an investor. His central idea, which we have tackled in detail in 'Wealth Insight' September 2023 issue's cover story, was that an individual could invest well - better than Wall Street - using the knowledge that was available in one's daily life.

At that time, the idea that an individual could participate in the wealth generation of the equity markets was a radical one for all except the very rich - you couldn't even get a stockbroker to talk to you if you were investing a 'middle-class amount'. Most investors only ever invested in IPOs or new issues, as they were called. These were 'sell-only' investors, in the sense that the only time they interacted with a broker was to sell whatever allotment they got in the new issue lottery.

Of course, the brokers were all swindlers, and the stock exchanges operated in a manner that helped them swindle. There was no transaction proof. The brokers would claim to have sold your stock at the lowest price of the day at the stock exchange (there were 8-9, I think), where the price was the lowest anyway. You had no choice but to accept all this.

Apart from planting the seed of going 'one up on Dalal Street' in my mind, Lynch's book was also a great education in investment research. In fact, it's this which is the real value of the book. As he put it in the introduction, "Peter Lynch doesn't advise you to buy stock in your favourite store just because you like shopping in the store, nor should you buy stock in a manufacturer because it makes your favourite product or a restaurant because you like the food. Liking a store, a product, or a restaurant is a good reason to get interested in a company and put it on your research list, but it's not enough of a reason to own the stock!"

The heart of the book is an education on how to do this research - I understood clearly what a business' finances were, how to understand financial statements, what to look for and what to ignore. This is the knowledge that I use even to this day. This is the A-B-C of investment research, and unless an investor understands this, he can't progress beyond copying others' ideas and looking for tips.

When Peter Lynch wrote the book, he was known only for his incredible track record as a fund manager. From 1977 to 1990, while managing the Fidelity Magellan fund in the US, he generated an annualised return of 29.4 per cent, making it the best-performing fund in the world. While this performance made Lynch a legend in the world of investments, it is his writings on equity investing that have firmly secured his legacy.

You should read our cover story of 'Wealth Insight' September 2023 issue, and I'm sure that you will. However, you must also read his books. Apart from the classic, 'One Up on Wall Street', there are others just as valuable. There are 'Beating the Street' and 'Learn to Earn', and many articles and interviews that can be found on the internet. As you can probably tell from the titles alone, the other books are also based on his belief that ordinary individual investors can do better than professional investors and fund managers.