Resumo de One Up On Wall Street

One Up on Wall Street

Peter Lynch?s definitive book, One Up on Wall Street, addresses investing from the standpoint of a strategy Lynch refers to as ?evaluating the fundamentals?. To Lynch, the seeming randomness of price movement cannot be thought of as the product of totally efficient markets ( i.e. the belief that stocks move randomly and a monkey could pick stocks better than any money manager) nor can stocks be thought of academic by products- predictable through statistical regressions and factor accumulation theories. Instead, what should be evaluated is a company?s classification or patterns of earnings and growth, and its ?fundamentals?. Only by sagaciously investing in a diversified portfolio with companies of all classifications and fundamentals will an amateur investor be able to beat the market indexes.

The stock fundamentals that should be strong in all stocks an investor pursues are the p/e ratio, percentage of institutional ownership, inside activity, records of earnings, balance sheets, and cash positions. The p/e ratio or price/earnings ratio is a statistic that measures the proportion of the stock?s price with the company?s earnings. A lower p/e ratio indicates that the price is low for the company?s earnings which is good for the investor. The percentage of institutional ownership indicates how much of the stock is owned by companies and not private investors. A lower percentage is better. Inside activity indicates how many shares of the stock are being bought and sold by employees of the company. Lynch contends that strong inside activity, or a larger number of employees buying the company?s shares indicates employee confidence in the direction of the company which will always be a good thing. Records of earning indicate the consistency of the company in making money- it is an indicator of ingenuity and creativity- two forces that keep a profitable company, well, profitable. The balance sheet of company, Lynch argues, should always have a low debt to earnings ratio even in companies whose stock prices are low. This indicates that the company will not go under even when investors are selling, and that eventually the company may turn around (and the stock price as well). Finally cash positions indicate how much of the company is non-liquid indicating the ?floor? or price to which a company?s stock will drop before it hits rock bottom.

Lynch puts general stocks into 6 categories: slow growers, stalwarts, cyclicals, fast growers, turnarounds, and asset plays. Slow growers are companies that aren?t especially big but just grow very slowly. The best stock play in this situation is to buy the stock for its dividends. If at all possible, check what percent of the company?s earnings are paid out as dividends. If this percentage is high, the dividend is riskier. The second category, stalwarts, is used to describe large companies that aren?t likely to go out of business. These companies would be large caps like Coke, Disney, and IBM. These stocks will have a lower growth rate than newer, riskier companies, but can still be profitable if the investor evaluates the company?s diversifications (the smaller subsidiaries that large caps tend to buy up) and catches the company?s performance during recessions. The Key is to buy a stalwart with a consistent long-term growth rate and innovative momentum created by wise purchases of smaller companies and new products. Cyclicals are companies whose stock price and earnings tend to vacillate in response to market and outside forces. A farmer, for instance, would be a cyclical because he harvests and sells in the summer and does nothing in the winter. To play cyclicals well, an investor must keep an eye on the company?s inventories and the supply and demand of the market forces affecting the product of the company. Fast growers are usually smaller companies that grow with explosive speed, often times riding on a few key products or services. Understanding a fast groower means knowing if the company is growing at a healthy rate. A 20-25% growth rate, lynch argues is ideal while 50% growth rates and higher usually indicate fads and ?hot? industries that are not long term buys. Turnarounds are companies that have taken a hit and whose stock prices are way undervalued. By evaluating a turnaround?s debt structure and other moves (selling useless subsidiaries, etc) an investor can profit greatly from investing in the stock?s low price. The final category, asset plays, revolves around buying companies that are soon to be taken over so that the value of the company?s assets (real estate, etc.) jump when made profitable through the buying company.

This book emphasizes the fundamentals of stock picking over fads, bubbles, and fashionable industries that quickly fade out of the investing scene. Peter Lynch?s insights encourage the investor to pick companies based on the merit of the company not the industry, and to hold stocks for prolonged periods for as long as the fundamentals remain the same.

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