Don’t think you have an advantage over Wall Street as an individual investor? Think again.

I just finished reading an amazing book that I’ve heard about for quite some time, but that I finally sat down and read.

It was such an amazing book, and so revelatory, that I had to pass it along to all my readers on PeakStocks.com.

One Up On Wall Street

The name of the book is “One Up On Wall Street : How To Use What You Already Know To Make Money In The Market” and is written by Peter Lynch.

You can quickly add it to your wish list or purchase it on Amazon.com by clicking on the image to the right.

For those of you who don’t know Peter Lynch, he is one of the greatest fund managers and investors to ever live.

His fund, the Fidelity Magellan Fund, far outpaced the market for his entire tenure over the fund (1977-1990), averaging returns of 30% per year and was the best performing fund in the world during that time. He is widely known as one of the best investors of all-time right up there with the likes of Warren Buffett.

If someone like Peter Lynch talks about investing, you better listen, and this book presents an amazing chance to learn what made him such a great investor, but more importantly, how his lessons can be EASILY learned and executed by ANYONE to beat the market and most mutual funds.

Stalking the Ten Bagger

In Lynchian parlance, a “bagger” was a multiple of a stock doubling. So, for instance, a 3-bagger meant that a stock tripled in value. A 6-bagger meant a stock rose 6 times in value. The term was loosely derived from baseball terminology whereby a home-run is sometimes referred to as a “fourbagger”.

Lynch was always stalking the next “tenbagger”.

His simple theory was that by just being observant, and investing in what you know, opportunities abound all around us for the average “layperson” to not only beat the market and mutual funds, but to find that elusive tenbagger BEFORE professional analysts do, and thus turn what would be an average portfolio into a star performer.

Our Advantage Over Wall Street

These types of stocks are out there, and by just being observant, and doing a little homework, we can find them and ride them to the top.

The reason this book spoke to me deeply was because that is exactly what I am trying to accomplish here at PeakStocks.com and why I mostly invest in micro-cap and small-cap companies that have a real chance to not only double, but go way beyond that in 3, 5, and 10 years down the line. That’s how true wealth is created, and how an average portfolio turns into a career-defining one.

Whether you are interested in investing or not, the lessons taught in this book serve to validate the fact that the very reasons why you and I are able to invest in small companies are the very same reasons Wall Street cannot, and how we can exploit this advantage over time.

Buy What You Know

Lynch begins by recounting how the average person, and him included, miss out on brilliant stock ideas almost every single day!

By just paying attention, and looking around, you can come up with 10’s of ideas each week that you can then pursue further and see if they represent good companies.

For instance, if you are at the mall and notice that The Gap really has some nice clothing for once, and is packed, it can become a catalyst to take a look at the stock and do some research and see if it represents a good investing opportunity.

For large Wall Street players, because they are limited in what they can buy and research, a lot of these companies are either too small for them to invest in, off their radar, or they are prevented from owning them because of rules and restrictions put in place by the mutual fund industry that prevent even smart money managers from taking the plunge in a simple company and stock that you or I could buy whenever we wanted to.

As Lynch states in the book:

“…If you invest like an institution, you’re doomed to perform like one, which in many cases isn’t very well…if you’re a surfer, a trucker, a high school dropout, or an eccentric retiree, then you’ve got an edge already. That’s where the tenbaggers come from, beyond the boundaries of accepted Wall Street cogitation.”

Finally, Lynch goes into detail and gives various examples of how regardless of external forces around us like droughts, recessions, depressions, wars, etc., always putting money to work in the market is the best choice you can ever make with your money.

While you can never time external forces that seem to influence the market, always investing in sound companies with good balance sheets will yield long term results regardless of the overall market and what’s happening around us.

Picking Winners

Ok, so now what? You’ve got great ideas and you think they are awesome investment opportunities. What now?

Well, luckily for anyone that reads this book, Lynch goes into minimal details about the research that needs to be done on a stock to ascertain whether or not it can go from a great idea, into a great INVESTMENT.

He talks about recognizing the 6 types of companies to invest in (Slow Grower, Stalwart, Fast Grower, Turnaround, Asset Play and Cyclical), and how each can have its advantages and disadvantages in terms of risk/reward.

He talks about the 13 attributes that you should look for in a company you are thinking about investing in. Things like the business being something dull or boring, institutions don’t own it and analysts don’t follow it, the company has a niche, etc.

He further goes into easy-to-understand details about checking out a company’s P/E ratio, growth prospects, cash flows, etc., in a way that won’t bog you down in minutiae, but gives you the minimal amount of knowledge and investigating you should possess before pressing the “buy” button. He even discusses how to contact a company yourself and get your questions answered via their investor relations department or by simply visiting their headquarters and taking a tour.

Finally, Lynch discusses what stocks to avoid and reasons for avoiding them. This can range from stocks that are the “next great thing” to companies that “diworseify” instead of diversifying by taking on unlike businesses in acquisitions or losing focus.

In addition, his basic premise when buying and holding stocks is brilliant. Namely, if a stock you own declines and you aren’t telling yourself its a great buying opportunity, then you shouldn’t be in that stock in the first place!

Some quotes:

Below are some of my favorite quotes from this book that we could all learn from:

• 6 out of 10 is all it takes to create an enviable record on Wall Street.
• Don’t overestimate the skill and wisdom of professionals.
• Invest in companies, not the stock market.
• Predicting short term fluctuations in the market is futile.
• It is better to miss a first move in a stock and wait to see if a company’s plans are working out.
• Be patient. Watched stock never boils.
• When in doubt, tune in later.
• Invest at least as much time and effort in choosing a new stock as you would in choosing a new refrigerator.
• If you can’t convince yourself “When I’m down 25%, I’m a buyer” and forever banish the thought “When I’m down 25%, I’m a seller,”, then you’ll never make a decent profit from stocks.
• Sometime in the next month, year, or three years, the market will decline sharply.
• Stock prices often move in opposite directions from the fundamentals, but long term, the direction and sustainability of profits will prevail.
• Just because the price goes up doesn’t mean your right.
• Just because the price goes down, doesn’t mean your wrong.
• 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.

A Few Quibbles

I have a couple of small issues with the book, but none of them are even remotely large enough to not recommend the book to every single person out there that is even slightly interested in stocks and investing themselves.

Some info is old: The book was written in 1989, so obviously some of the information in it is out of date. Some of the stocks he references and publications he uses for his research no longer apply or are out of date.

Some of the companies that he mentions you probably won’t remember or know, but that doesn’t detract from the points made in the book.

I wish he went into more detail: Most of you will be happy he didn’t. This makes for a quick read, and an intense learning experience because you only have to focus on a few things instead of everything and the kitchen sink too.

For me, some more number crunching and details would have been helpful, but Mr. Lynch stops short before he bored anyone that isn’t me to tears with excruciating detail.

The Bottom Line:

This book is a masterpiece of information, knowledge and practical hands-on examples and ideas for anyone to use to become a better investor, or begin their investing career based on things they are already good at and know intimately.

For the cost of this book, your money and time will be repaid to you probably over 1000 times over the course of your investing lifetime, and as such, I am giving this book my full endorsement.

In fact, this book enlightened and informed me so much, and will do the same for you, that if you buy the book and aren’t completely satisfied with it, come back to PeakStocks.com and I’ll post any legitimate complaint on the site for all to see.

Better yet, just buy the book because you want to learn more about investing and beating the market on YOUR terms, and stop relying on mutual funds and other investing vehicles that have left you far behind in your potential returns and wishing you actually controlled your own investing success and future.

Part of that arsenal is presented in “One Up On Wall Street”.

It’s a quick read, chock-full of information, and you won’t regret spending a few hours learning how to turn what you already know into money.