Beating the Street

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Simon and Schuster, 25 may. 1994 - 332 páginas
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Legendary money manager Peter Lynch explains his own strategies for investing and offers advice for how to pick stocks and mutual funds to assemble a successful investment portfolio.

Develop a Winning Investment Strategy—with Expert Advice from “The Nation’s #1 Money Manager.” Peter Lynch’s “invest in what you know” strategy has made him a household name with investors both big and small.

An important key to investing, Lynch says, is to remember that stocks are not lottery tickets. There’s a company behind every stock and a reason companies—and their stocks—perform the way they do. In this book, Peter Lynch shows you how you can become an expert in a company and how you can build a profitable investment portfolio, based on your own experience and insights and on straightforward do-it-yourself research.

In Beating the Street, Lynch for the first time explains how to devise a mutual fund strategy, shows his step-by-step strategies for picking stock, and describes how the individual investor can improve his or her investment performance to rival that of the experts.

There’s no reason the individual investor can’t match wits with the experts, and this book will show you how.
 

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BEATING THE STREET

Reseña de usuario  - Jane Doe - Kirkus

More uncommonly sensible investment guidance from a master of the game. Drawing on his experience at Fidelity's Magellan Fund, a high- profile vehicle he quit at age 46 in 1990 after a spectacularly ... Leer reseña completa

Beating the Street: the best-selling author of One up on Wall Street shows you how to pick winning stocks and develop a strategy for mutual funds

Reseña de usuario  - Not Available - Book Verdict

Lynch is the master stock picker who led Magellan (until May 1990) to its position as America's biggest mutual fund. In One Up on Wall Street (Simon & Schuster, 1989), also written with Rothchild, he ... Leer reseña completa

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Índice

Preface
5
The Miracle of St Agnes
23
The Weekend Worrier
36
Managing Magellan The Early Years
82
Magellan The Middle Years
101
Magellan The Later Years
116
Art Science and Legwork
140
Prospecting in Bad News How
160
My Close Shave at Supercuts
177
Its a Wonderful Buy
194
Master Limited Partnerships A Deal with
221
Nukes in Distress CMS Energy
245
Uncle Sams Garage Sale
256
Treasure in the Backyard The Colonial
275
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Página 4 - You remind yourself that nobody on his deathbed ever said: "I wish I'd spent more time at the office.

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Sobre el autor (1994)

Chapter 1

THE MIRACLE OF ST. AGNES

Amateur stockpicking is a dying art, like pie-baking, which is losing out to the packaged goods. A vast army of mutual-fund managers is paid handsomely to do for portfolios what Sara Lee did for cakes. I''m sorry this is happening. It bothered me when I was a fund manager, and it bothers me even more now that I have joined the ranks of the nonprofessionals, investing in my spare time.

This decline of the amateur accelerated during the great bull market of the 1980s, after which fewer individuals owned stocks than at the beginning. I have tried to determine why this happened. One reason is that the financial press made us Wall Street types into celebrities, a notoriety that was largely undeserved. Stock stars were treated like rock stars, giving the amateur investor the false impression that he or she couldn''t possibly hope to compete against so many geniuses with M.B.A. degrees, all wearing Burberry raincoats and armed with Quotrons.

Rather than fight these Burberried geniuses, large numbers of average investors decided to join them by putting their serious money into mutual funds. The fact that up to 75 percent of these mutual funds failed to perform even as well as the stock market averages proves that genius isn''t foolproof.

But the main reason for the decline of the amateur stockpicker has to be losses. It''s human nature to keep doing something as long as it''s pleasurable and you can succeed at it, which is why the world population continues to increase at a rapid rate. Likewise, people continue to collect baseball cards, antique furniture, old fishing lures, coins, and stamps, and they haven''t stopped fixing up houses and reselling them, because all these activities can be profitable as well as enjoyable. So if they''ve gotten out of stocks, it''s because they''re tired of losing money.

It''s usually the wealthier and more successful members of society who have money to put into stocks in the first place, and this group is used to getting A''s in school and pats on the back at work. The stock market is the one place where the high achiever is routinely shown up. It''s easy to get an F here. If you buy futures and options and attempt to time the market, it''s easy to get all F''s, which must be what''s happened to a lot of people who have fled to the mutual funds.

This doesn''t mean they stop buying stocks altogether. Somewhere down the road they get a tip from Uncle Harry, or they overhear a conversation on a bus, or they read something in a magazine and decide to take a flier on a dubious prospect, with their "play" money. This split between serious money invested in the funds and play money for individual stocks is a recent phenomenon, which encourages the stockpicker''s caprice. He or she can make these frivolous side bets in a separate account with a discount broker, which the spouse doesn''t have to know about.

As stockpicking disappears as a serious hobby, the techniques of how to evaluate a company, the earnings, the growth rate, etc., are being forgotten right along with the old family recipes. With fewer retail clients interested in such information, brokerage houses are less inclined to volunteer it. Analysts are too busy talking to the institutions to worry about educating the masses.

Meanwhile, the brokerage-house computers are busily collecting a wealth of useful information about companies that can be regurgitated in almost any form for any customer who asks. A year or so ago, Fidelity''s director of research, Rick Spillane, interviewed several top-producing brokers about the data bases and so-called screens that are now available. A screen is a computer-generated list of companies that share basic characteristics -- for example, those that have raised dividends for 20 years in a row. This is very useful to investors who want to specialize in that kind of company.

At Smith Barney, Albert Bernazati notes that his firm can provide 8-10 pages of financial information on most of the 2,800 companies in the Smith Barney universe. Merrill Lynch can do screens on ten different variables, the Value Line Investment Survey has a "value screen," and Charles Schwab has an impressive data service called "the Equalizer." Yet none of these services is in great demand. Tom Reilly at Merrill Lynch reports that less than 5 percent of his customers take advantage of the stock screens. Jonathan Smith at Lehman Brothers says that the average retail investor does not take advantage of 90 percent of what Lehman can offer.

In prior decades, when more people bought their own stocks, the stockbroker per se was a useful data base. Many old-fashioned brokers were students of a particular industry, or a particular handful of companies, and could help teach clients the ins and outs. Of course, one can go overboard in glorifying the old-fashioned broker as the Wall Street equivalent of the doctor who made house calls. This happy notion is contradicted by public opinion surveys that usually ranked the stockbroker slightly below the politican and the used-car salesman on the scale of popularity. Still, the bygone broker did more independent research than today''s version, who is more likely to rely on information generated in house by his or her own firm.

Newfangled brokers have many things besides stocks to sell, including annuities, limited partnerships, tax shelters, insurance policies, CDs, bond funds, and stock funds. They must understand all of these "products" at least well enough to make the pitch. They have neither the time nor the inclination to track the utilities or the retailers or the auto sector, and since few clients are invested in individual stocks, there''s little demand for their stockpicking advice. Anyway, the broker''s biggest commissions are made elsewhere, on mutual funds, underwritings, and in the options game.

With fewer brokers offering personal guidance to fewer stock-pickers, and with a climate that encourages capricious speculation with "fun" money and an exaggerated reverence for professional skills, it''s no wonder that so many people conclude that picking their own stocks is hopeless. But don''t tell that to the students at St. Agnes.

THE ST. AGNES PORTFOLIO

The fourteen stocks shown in Table 1-1 were the top picks of an energetic band of seventh-grade portfolio managers who attended the St. Agnes School in Arlington, Massachusetts, a suburb of Boston, in 1990. Their teacher and CEO, Joan Morrissey, was inspired to test the theory that you don''t need a Quotron or a Wharton M.B.A., or for that matter even a driver''s license, to excel in equities.

You won''t find these results listed in a Lipper report or in Forbes, but an investment in the model St. Agnes portfolio produced a 70 percent gain over a two-year period, outperforming the S&P 500 composite, which gained 26 percent in the same time frame, by a whopping margin. In the process, St. Agnes also outperformed 99 percent of all equity mutual funds, whose managers are paid considerable sums for their expert selections, whereas the youngsters are happy to settle for a free breakfast with the teacher and a movie.

Table 1-1. ST. AGNES PORTFOLIO

Company 1990-91 Performance (%)

Wal-Mart 164.7

Nike 178.5

Walt Disney 3.4

Limited 68.8

L.A. Gear - 64.3

Pentech 53.1

Gap 320.3

PepsiCo 63.8

Food Lion 146.9

Topps 55.7

Savannah Foods - 38.5

IBM 3.6

NYNEX - .22

Mobil 19.1

Total Return for Portfolio 69.6

S&P 500 26.08

Total return performance January 1, 1990-December 31, 1991

I was made aware of this fine performance via the large scrapbook sent to my office, in which the seventh graders not only listed their top-rated selections, but drew pictures of each one. This leads me to Peter''s Principle #3:

Never invest in any idea you can''t illustrate with a crayon.

This rule ought to be adopted by many adult money managers, amateur and professional, who have a habit of ignoring the understandably profitable enterprise in favor of the inexplicable venture that loses money. Surely it would have kept investors away from Dense-Pac Microsystems, a manufacturer of "memory modules," the stock of which, alas, has fallen from $16 to 25 cents. Who could draw a picture of a Dense-Pac Microsystem?

In order to congratulate the entire St. Agnes fund department (which doubles as Ms. Morrissey''s social studies class) and also to learn the secrets of its success, I invited the group to lunch at Fidelity''s executive dining room, where, for the first time, pizza was served. There, Ms. Morrissey, who has taught at St. Agnes for 25 years, explained how her class is divided every year into teams of four students each, and how each team is funded with a theoretical $250,000 and then competes to see who can make the most of it.

Each of the various teams, which have adopted nicknames such as Rags to Riches, the Wizards of Wall Street, Wall Street Women, The Money Machine, Stocks R Us, and even the Lynch Mob, also picks a favorite stock to be included in the scrapbook, which is how the model portfolio is created.

The students learn to read the financial newspaper Investor''s Business Daily. They come up with a list of potentially attractive companies and then research each one, checking the earnings and the relative strength. Then they sit down and review the data and decide which stocks to choose. This is a similar procedure to the one that is followed by many W

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