One Up On Wall Street: How to Use What You Already Know to Make Money in the Market by Peter Lynch

Part I
PREPARING TO INVEST
Before you think about buying stocks, you ought to have made some basic decisions
about the market, about how much you trust corporate America, about whether you
need to invest in stocks and what you expect to get out of them, about whether you are
a short-or long-term investor, and about how you will react to sudden, unexpected,
and severe drops in price. It’s best to define your objectives and clarify your attitudes
(do I really think stocks are riskier than bonds?) beforehand, because if you are
undecided and lack conviction, then you are a potential market victim, who
abandons all hope and reason at the worst moment and sells out at a loss. It is
personal preparation, as much as knowledge and research, that distinguishes the
successful stockpicker from the chronic loser. Ultimately it is not the stock market nor
even the companies themselves that determine an investor’s fate. It is the investor.

1

The Making of a Stockpicker
There’s no such thing as a hereditary knack for picking stocks.
Though many would like to blame their losses on some inbred tragic flaw,
believing somehow that others are just born to invest, my own history refutes it.
There was no ticker tape above my cradle, nor did I teethe on the stock pages in
the precocious way that baby Pelé supposedly bounced a soccer ball. As far as I
know, my father never left the pacing area to check on the price of General
Motors, nor did my mother ask about the ATT dividend between contractions.
Only in hindsight can I report that the Dow Jones industrial average was
down on January 19, 1944, the day I was born, and declined further the week I
was in the hospital. Though I couldn’t have suspected it then, this was the
earliest example of the Lynch Law at work. The Lynch Law, closely related to the
Peter Principle, states: Whenever Lynch advances, the market declines. (The
latest proof came in the summer of 1987, when just after the publisher and I
reached an agreement to produce this book, a high point in my career, the
market lost 1,000 points in two months. I’ll think twice before attempting to sell
the movie rights.)
Most of my relatives distrusted the stock market, and with good reason. My
mother was the youngest of seven children, which meant that my aunts and
uncles were old enough to have reached adulthood during the Great Depression,
and to have had firsthand knowledge of the Crash of ’29. Nobody was
recommending stocks around our household.
The only stock purchase I ever heard about was the time my grandfather,
Gene Griffin, bought Cities Service. He was a very conservative investor, and he
chose Cities Service because he thought it was a water utility. When he took a
trip to New York and discovered it was an oil company, he sold immediately.
Cities Service went up fiftyfold after that.
Distrust of stocks was the prevailing American attitude throughout the 1950s
and into the 1960s, when the market tripled and then doubled again. This
period of my childhood, and not the recent 1980s, was truly the greatest bull
market in history, but to hear it from my uncles, you’d have thought it was the
craps game behind the pool hall. “Never get involved in the market,” people
warned. “It’s too risky. You’ll lose all your money.”

Looking back on it, I realize there was less risk of losing all one’s money in the

One Up On Wall Street: How to Use What You Already Know to Make Money in the Market by Peter Lynch