Peter Lynch - One Up On Wall Street: How To Use What You Already Know To Make Money In The Market

PETER LYNCH is vice chairman of Fidelity Management & Research Companythe investment advisor arm of Fidelity Investmentsand a member of the Board of Trustees of the Fidelity funds. Mr. Lynch was portfolio manager of Fidelity Magellan Fund, which was the best performing fund in the world under his leadership from May 1977 to May 1990. He is the co-author of the bestselling Beating the Street and Learn to Earn, a beginners guide to the basics of investing and business. He lives in the Boston area.

JOHN ROTHCHILD has written for Time, Fortune, Worth, and The New York Times Book Review. The author of A Fool and His Money and Going for Broke, he is also the co-author, with Peter Lynch, of Beating the Street and Learn to Earn. He lives in Miami Beach, Florida.

Cover design by Tom Lau
Cover photograph by Sigrid Estrada

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FIRESIDE
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Copyright 1989 by Peter Lynch
Introduction copyright 2000 by Peter Lynch
All rights reserved,
including the right of reproduction
in whole or in part in any form.

First Fireside Edition 2000

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Designed by Elina Nudelman

Library of Congress Cataloging-in-Publication Data is available.

ISBN 0-7432-0040-3
ISBN: 978-1-4391-2615-8 (eBook)

To Carolyn, my wife and best friend for over twenty years, whose support and sacrifices have been critically important to me.

To my children, Mary, Annie, and Beth, whose love for each other and their parents has meant so very much.

To my colleagues at Fidelity Investments, whose extra efforts have made Magellans performance possible but who have received none of the favorable publicity.

To one million shareholders in Magellan, who have entrusted their savings to me and who have sent thousands of letters and made thousands of calls over the years, comforting me during declines in the market and reminding me that the future will be fine.

To Holy God for all the incredible blessings I have been given in my life.

This book was written to offer encouragement and basic information to the individual investor. Who knew it would go through thirty printings and sell more than one million copies? As this latest edition appears eleven years beyond the first, Im convinced that the same principles that helped me perform well at the Fidelity Magellan Fund still apply to investing in stocks today.

Its been a remarkable stretch since One Up on Wall Street hit the bookstores in 1989. I left Magellan in May, 1990, and pundits said it was a brilliant move. They congratulated me for getting out at the right timejust before the collapse of the great bull market. For the moment, the pessimists looked smart. The countrys major banks flirted with insolvency, and a few went belly up. By early fall, war was brewing in Iraq. Stocks suffered one of their worst declines in recent memory. But then the war was won, the banking system survived, and stocks rebounded.

Some rebound! The Dow is up more than fourfold since October, 1990, from the 2,400 level to 11,000 and beyondthe best decade for stocks in the twentieth century. Nearly 50 percent of U.S. households own stocks or mutual funds, up from 32 percent in 1989. The market at large has created $25 trillion in new wealth, which is on display in every city and town. If this keeps up, somebody will write a book called The Billionaire Next Door.

More than $4 trillion of that new wealth is invested in mutual funds, up from $275 billion in 1989. The fund bonanza is okay by me, since I managed a fund. But it also must mean a lot of amateur stockpickers did poorly with their picks. If theyd done better on their own in this mother of all bull markets, they wouldnt have migrated to funds to the extent they have. Perhaps the information contained in this book will set some errant stockpickers on a more profitable path.

Since stepping down at Magellan, Ive become an individual investor myself. On the charitable front, I raise scholarship money to send inner-city kids of all faiths to Boston Catholic schools. Otherwise, I work part-time at Fidelity as a fund trustee and as an adviser/trainer for young research analysts. Lately my leisure time is up at least thirtyfold, as I spend more time with my family at home and abroad.

Enough about me. Lets get back to my favorite subject: stocks. From the start of this bull market in August 1982, weve seen the greatest advance in stock prices in U.S. history, with the Dow up fifteenfold. In Lynch lingo thats a fifteenbagger. Im accustomed to finding fifteen-baggers in a variety of successful companies, but a fifteenbagger in the market at large is a stunning reward. Consider this: From the top in 1929 through 1982, the Dow produced only a fourbagger: up from 248 to 1,046 in a half century! Lately stock prices have risen faster as theyve moved higher. It took the Dow 8 years to double from 2,500 to 5,000, and only 3 years to double from 5,000 to 10,000. From 199599 we saw an unprecedented five straight years where stocks returned 20 percent plus. Never before has the market recorded more than two back-to-back 20 percent gains.

Wall Streets greatest bull market has rewarded the believers and confounded the skeptics to a degree neither side could have imagined in the doldrums of the early 1970s, when I first took the helm at Magellan. At that low point, demoralized investors had to remind themselves that bear markets dont last forever, and those with patience held on to their stocks and mutual funds for the fifteen years it took the Dow and other averages to regain the prices reached in the mid-1960s. Today its worth reminding ourselves that bull markets dont last forever and that patience is required in both directions.

On its the Internet, and so far the Internet has passed me by. All along Ive been technophobic. My experience shows you dont have to be trendy to succeed as an investor. In fact, most great investors I know (Warren Buffett, for starters) are technophobes. They dont own what they dont understand, and neither do I. I understand Dunkin Donuts and Chrysler, which is why both inhabited my portfolio. I understand banks, savings-and-loans, and their close relative, Fannie Mae. I dont visit the Web. Ive never surfed on it or chatted across it. Without expert help (from my wife or my children, for instance) I couldnt find the Web.