Tuesday, January 17, 2012

Review: One Up on Wall Street

I'm always skeptical about books whose cover shows the author smiling with arms crossed. At least Peter Lynch is facing the reader squarely in this one. One Up on Wall Street is a very readable book offering practical instruction on stock investments. It lacks any rigorous theory on why stocks go up, but basically concludes that stock prices follow company earnings in the long run. This seems to be confirmed by history and it makes sense when you consider that a share of stock represents ownership in a company. Lynch warns against trying to predict anything related to the economy, including the stock market, in the short term.

One Up on Wall Street by Peter Lynch bookRead more reviews on AmazonOne Up is enjoyable to read because of its clear writing and humorous references. "The 1960s was the greatest decade for diworseification since the Roman Empire diworseified all over Europe and northern Africa."

Lynch's advice to "ignore all the adjectives" about a stock seems wise since any information obtained so uncritically is likely to be followed by the masses—in which case an investor has no edge. One Up is sprinkled with other good points that might be easy to overlook, such as the risk in a "can't fail" idea with no patent or niche to protect it. A common misconception about Lynch is that he thinks insider activity is solid indicator of a company's prospects; in reality, he thinks insider selling is a "terrible reason" to dislike a stock and that only insider buying is important to note. The author's basic strategy is to invest in proven, but unnoticed, enterprises that an average person could understand.

Lynch's distaste for stock options, futures, and short selling comes through in One Up in an unhelpful way. He mentions how he agrees with Warren Buffett that stock futures and options ought to be outlawed, but he doesn't justify his prejudice against these more speculative investment methods. He claims short selling is "more like borrowing with criminal intent," but doesn't explain what the crime would be. You almost get the impression that Lynch thinks irresponsible behavior should be illegal, but the reader doesn't learn much about why—or how Lynch manages to reconcile this with a general belief in capitalism.

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