Coaches on the football pitch stomp their feet and yell that communication is key. Well, in the investing world, the greats are stomping their feet and yelling that research is the key to success.

American investor, mutual fund manager, and philanthropist Peter Lynch is a prominent advocate for doing your research before you buy a specific stock. Lynch teaches a practical approach to investing in the stock market, focusing on discerning undervalued and underappreciated stocks to capitalize on these otherwise missed opportunities. We’ve distilled some of the main investment knowledge to be gleaned from his book One Up On Wall Street, published in 1989, that you may like to add to your investing strategy.

About the Author

Peter Lynch is one of the most successful investors of all time. In addition to becoming Fidelity’s Magellan Fund manager at the age of only 33 and serving for 13 years with an incredible average return of over 29% per year, Lynch pioneered an adaptive investing style that weathered economic environments with legendary resilience.

Credited with inventing the price-to-earnings-growth (PEG) ratio, throughout his career in finance, Lynch would go on to develop various valuation methods that help investors determine undervalued stocks in light of their growth potential. The emphasis of his methodology is on understanding exactly what you own and why.

Key Insights

1. Focus on the details of the companies and ignore the general market

People love to speculate, but economists have spent decades predicting recessions, yet they still can’t seem to get it right. Even the experts on Wall Street, in their lofty ivory towers filled with stock charts, put-call ratios, and foreign investments, can’t predict markets with any useful consistency that everyday investors can rely upon.

As an investor, your job is to pick financially sustainable stocks with the highest earnings potential. If the market is currently overvalued, Lynch’s advice is to wait because none of the stocks will be reasonably priced, so there won’t be a company worth investing in at this stage.

2. Don’t waste your time trading options or futures

You will most likely lose your shirt. Warren Buffett has repeatedly stated that futures and options should be outlawed, and Lynch firmly agrees with the Oracle of Omaha.

The issue with options is that they are a derivative (so there’s no actual ownership) and thus very complex and high-risk.

Futures are even riskier. Created for the institutional investor rather than the individual investor, this financial product is more suited to investments in the commodity market. Parties have to establish prices in advance, and either side may later on need to deposit more funds into their accounts to meet daily obligations. When trading futures, you are facing maximum liability on both sides.

3. In ideal conditions, even if you fully understand the stocks you own, you will still only have a 20% chance of investing in a company that turns out to have phenomenal profitability

So, out of five companies you invest in, one will take you to the moon, while three may deliver expected results, and the last is likely to disappoint completely. Therefore, research is critical before you invest in any stocks to give you the best possible chance of building a successful portfolio.

4. The easiest way to decide whether to invest in a company is to see if you can explain its core business simply and quickly, like in an elevator pitch

Think simple enough that a fifth-grader would understand it and fast enough that they won’t get bored listening. If you succeed with this task, don’t miss what could be an extraordinary investment opportunity.

5. In the stock market, as in marriage, the ease of divorce is not a reason to marry

Just because you have an out doesn’t mean you should make rash decisions when you go into it. Keep in mind that this is all part of a long-term strategy, ideally with a decades-long investment horizon.

Twenty years is enough time for a well-chosen stock to bounce back from nasty market corrections and accumulate handsome profits. If you choose your stocks wisely, you won’t want to sell them. Of course, complications will arise, but since no amount of liquidity will keep you from suffering (even financially) in your daily life, it makes sense to invest for the long haul.

6. No one can make any money when the industry becomes too popular

Nobody wins in an overrated industry. Lynch writes: “If it’s a choice between investing in a good company in a great industry or a great company in a lousy industry, I’ll take the great company in the lousy industry any day.”

7. It’s a huge mistake to buy shares simply because their price has rapidly increased

The “here and now” is the best approach in the market. However, when looking at historical data, remember that it doesn’t show where the cliff drop-off is, and it doesn’t mean that the investment will do well in the years to come.


Over thirty years after it was first published, the principles Lynch describes in One Up On Wall Street still hold today. His wealth of knowledge has guided investors for decades. Lynch is straightforward with his advice: Know your stocks well, invest for the long-term, and find undervalued stocks.

As Lynch stated, remember that, “In the long run, it’s not just how much money you make that will determine your future prosperity. It’s how much of that money you put to work by saving it and investing it.”

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