Benjy Shashinka's Reviews > One Up On Wall Street: How to Use What You Already Know to Make Money in the Market

This is the friendliest and most approachable book on investing I've read. It's a mix of general investing philosophy, personal anecdotes and specific strategies for choosing, buying and selling stocks. He writes about his frequent missteps with regret but also the humor and perspective of one who has learned from his mistakes. Many investing books are written by authors who present themselves as ingenious laser-visioned mavericks who have reduced investing to a perfect science. Lynch, on the other hand, makes it clear that he's a rather normal person for the most part, and fully capable of misjudgment. He never tries to sell you on an 'infallible method' (How to Make Money in Stocks), something too easy to be true (Rule #1), nor overly simplistic (Millionaire Teacher, which can be summed up as 'just buy index funds'). Instead, he has a common-sense perspective, and rattles off wonderful gems like these:

•'In my experience, six out of ten winners in a portfolio can produce a satisfying result.'
•'Frankly, there is no way to separate investing from gambling into those neat categories that are meant to reassure us.'
•'All the major advances and declines have been surprises to me.'
•'Remember, things are never clear until it's too late.'
•'The size of a company has a lot to do with what you can expect to get out of the stock.'
•'If you can follow only one bit of data, follow the earnings.'
•'The bearish argument always sounds more intelligent.'
•'That's not to say there's no such thing as an overvalued market, but there's no point worrying about it.'
•When you sell in desperation, you always sell cheap.'

Lynch doesn't talk about 'stocks' in general but organizes them into five categories – the stalwarts, fast growers, slow growers, turnarounds, and cyclicals. Each has their own characteristics and reasons to buy. He also talks about the three phases in a growth company's life: the start-up phase, rapid expansion phase and the mature phase. Depending on the type of company and the current stage of its growth cycle, you need to use a different investing technique, he argues. This way of thinking is a breath of fresh air compared to that offered by most investing books, which treat stocks as simply 'stocks.'

He also dives into the emotional and psychological aspect of investing, writing about the personal qualities needed (tolerance for pain, open-mindedness, detachment, persistence, the ability to ignore general panic), and the 'three emotional states' that every 'unwary investor' passes through: 'concern, complacency, and capitulation.' He discourages you from beating yourself up when you miss an opportunity, like a stock on your watchlist that you chose not to buy, only to afterwards watch it do well: 'Regarding somebody else's gains as your own personal losses is not a productive attitude for investing in the stock market.'

Finally, in addition to his broader ideas and suggestions, Lynch gives super concrete advice that can easily be put into action. When choosing stocks, he recommends focusing on basic elements like the importance of earnings and assets, free cash flow, pretax profit margin, the PE ratio being half vs twice the growth rate of the company, and the amount of debt the company is carrying (80 percent debt and 20 percent equity is bad). These are practical tips you can put into practice right away.

All in all this is the best investing book I've yet read, and perhaps the only one where, if you followed most of his advice, you'd almost certainly do well. Like most investing books, it suffers from two problems: it can get repetitive: sometimes after making a point, he'll offer more and more (interesting) examples to make the same point. Second, since it was written in 1999, some of the examples can feel jarringly dated. It would be fantastic if authors like Lynch could update their classic books every ten years or so, with new examples and insight. Other than that, however, this is an excellent investing guidebook, for beginners and more advanced investors alike.