One Moneymaker's Uncommon Common Sense. BOOKS
ONE UP ON WALL STREET by Peter Lynch with John Rothchild, New York: Simon & Schuster, 318 pp., $19.95 PETER LYNCH has been given a ``mission impossible.'' He manages a mutual fund, Magellan, with $9.68 billion in assets as of March 31, the largest in the nation. His instructions are to beat the stock market averages, thereby justifying the trust placed in him by hundreds of thousands of investors - and to do it consistently.
According to some academics, that's not possible. A fund of that size invested in hundreds of stocks should perform like an average. But Lynch, year after year, defies such theories. Indeed, over a span of the past 10 years, Magellan is the best-performing fund.
With such a record, Lynch has become a superstar in financial circles. Many are reading his book to learn his ``secrets'' of investment. (It's on the New York Times best-seller list for advice books.) Perhaps they will be disappointed. This book offers primarily uncommon common sense in investment - no magic tips or neat gimmicks ``guaranteed'' to make a fortune.
Lynch's secret basically is hard research work and alertness in seeking out genuine value in stocks, plus sufficient skepticism to avoid the fads and fashions that so often prevail on Wall Street.
Because so much big money gets caught up in trendy stocks, Lynch argues that the small investor can do well in managing his own portfolio - perhaps a surprising statement from an employee of a huge mutual-fund group (Fidelity) that sells fund shares basically on the theory that the small guy benefits by seeking the investment diversification and professional money management offered by funds.
`I continue to think like an amateur as frequently as possible,'' Lynch writes. ``You don't have to invest like an institution. If you invest like an institution, you're doomed to perform like one, which in many cases isn't very well. Nor do you have to force yourself to think like an amateur if you already are one.''
The amateur isn't required, like a mutual fund manager, to have a large number of stocks in his portfolio. He can own a few - or none if no company seems attractive on the basis of fundamental value.
``Most important, you can find terrific opportunities in the neighborhood or at the workplace, months or even years before the news has reached the analysts and the fund managers they advise.''
Maybe that's true. Or perhaps its valid only for those with some approximation of the stability and investment sense of Lynch.
Certainly this book offers a great deal of Lynch's advice on how to pick stocks and avoid common investment foibles. Applying that advice to selecting individual stocks, however, may not be easy.
For those determined to play the stock market game, this book should be valuable. It is chatty, spotted with old jokes and new jokes, full of wit and bright phrases. Without one's knowing Lynch personally, it is difficult to know whether these elements characterize Lynch himself or have been partially introduced by his editorial helper, John Rothchild. The humor certainly helps make the book easy to read.
About midway, some of the investment anecdotes begin to sound repetitive - the reader must like investment tales to enjoy this book. But then more fresh material comes along.
At times Lynch offers a Wall Street version of ``true confessions,'' frequently telling of his investment mistakes. He also refers to investment successes, but not in a boastful manner.
``Six out of ten is all it takes to produce an enviable record on Wall Street,'' he writes. Sounds easy, but it isn't.
Selecting advice from nearly 300 pages of it must be arbitrary. But here's a sample:
On stock options and futures: ``If this is sensible investing, then the Titanic was a tight ship.'' Between 85 and 90 percent of the amateur options players in Chicago and New York lose - worse odds than at the casino or the racetrack. ``In the multibillion-dollar futures and options market, not a bit of the money is put to a constructive use. It doesn't finance anything except the cars, planes, and houses purchased by the brokers and the handful of winners.''
On the companies that rush into high growth and hot industries, most doing poorly: ``In business, imitation is the sincerest form of battery.''
On conglomerate companies today selling many of their subsidiaries ``to maximize shareholder value'':
``Restructuring is a company's way of ridding itself of certain unprofitable subsidiaries it should never have acquired in the first place. The earlier buying of these ill-fated subsidiaries, also warmly applauded, is called diversification. I call it diworseification.''