One Up on Wall Street (John Rothchild and Peter Lynch, 1989)

• The mirror test: "is xxx a good investment?"
• Do I own a house?
• Do I need the money?
• Do I have the personal qualities it takes to succeed?
• Do not ask if the market is good or bad - it is never all good or all bad, depending on your investment goals.
• When getting a buy signal, consider the following:
• 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
• The best tenbagger is close to home.
• What is considered a good deal
• It sunds dull or even better ridiculous
• It does something dull
• It does something disagreeable
• It's a spinoff
• The institution don't own it and the analysts don't follow it
• The rumours around: it's involved with toxic waste and/or the mafia
• There's something depressing about it
• It's a no-growth industry
• It's got a niche
• People have to keep buying it
• It's a user of technology
• The insiders are buyers
• The company is buying back shares
• Avoid the hottest stocks
• Notable financial numbers
• Percent of sales
• Price/earning ratio
• Cash position
• Debt factor
• Dividends
• Book value
• More hidden asset
• Cash flow
• Inventories
• Pension rates
• Growth rate
• Stock tips
• 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.
• Dangerous stock sayings
• If it's gone down this mjuch already, it can't go much lower
• You can always tell when a stock's hit bottom
• If it's gone this high already, how can it possibly go higher?
• It's only $3 a share: what can I lose?
• Eventually they always come back
• It's always darkest before the dawn
• When it rebounds to $10, I'll sell
• What me worry? Conservative stocks don't fluctuate much
• It's taking too long for anything to ever happen
• Look at all the money I've lost: I didn't but it
• I missed that one, I'll catch the next one
• The stock's gone up, so I must be right, or... The stock's gone down so I must be wrong
• There is nothing confirm in the market
• 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.