Can anyone be a good of a stock picker?
One of the best things about Lynch’s book One Up on Wall Street is that it undoes the myth that successful investors need special training in finance. Lynch believes everyone has the ability to pick winners in the stock market.
Great Performance in Everyday Companies
People think to find big winners in the stock market they have to go treasure hunting. As if golden opportunities were only available in unknown and obscure stocks. Nothing could be further from the truth.
Before Google went public in 2004, it had established itself as the place to start an internet search. I remember reading a pro’s opinion about Google’s stock in 2004. Only 2 months after its debut on the Nasdaq it went from $50 to $70. The pro said that at $70 it was too expensive. If you had invested $10,000 in Google in 2004 you would have over $500,000 today.
This kind of return is impressive and can be found in other well known companies. Here’s a look at what $10,000 would be worth after just 10 years in popular stocks like Apple.
- Apple – $76,470.
- Google – $81,160.
- Visa – $69,110.
- Starbucks – $25,780.
- Home Depot – $59,760.
In ten years $50,000 would be worth over $300,000. That’s a 500% gain with stocks that everyone has heard about. No special training in finance or time spent reading through pink sheets required to find these stocks.
Generalists are Flexible and Specialists are Rigid
Lynch thought that pros were hindered and not helped by their profession. For example a fund manager might specialize within a certain industry like energy. Being an energy specialist means they only buy energy stocks. They may come across a tech stock that is a good investment but can’t buy it since they’re an energy-only fund.
Investing in stocks is an art, not a science, and people who’ve been trained to rigidly quantify everything have a big disadvantage.Peter Lynch, One Up on Wall Street
This is where the amateur has an advantage over the professional. Amateur’s who invest for themselves aren’t forced to buy only certain kinds of stocks. They can have a portfolio that includes energy, tech, industrial or whatever they want.
The Value of Being an Insider
Another advantage the amateur has over the professional is they often have valuable knowledge about a company or industry before the professional. For example, if you work for a company that makes railroad ties you have firsthand knowledge a professional analyst might not.
Let’s say you work in the stockyard. You notice inventory is never at capacity. As soon as a new railroad tie comes in it gets shipped to a customer. This has been happening steadily for the last 24 months.
You decide to dig deeper and look at your company’s financial statements. You notice earnings have gone up 50% over the last year. The stock price hasn’t changed. No professional analysts cover it. Your company is an undervalued gem waiting to be discovered.
This is “sort of” the story of one stocks I made a 400% return on. In 2010, Stella-Jones was an unknown gem that no analysts covered. I didn’t work there but after reading the financial statements and annual reports I knew enough to know this was a good investment.
The Advice of Giants
The longer I do this the more I notice similarities in the advice from other investing giants like Warren Buffett, Ben Graham and Mohnish Pabrai. All of them repeat wisdom like “you don’t need a high IQ to be a successful investor” or “investing is more art than science” over and over.
Hearing other successful investors repeat the same advice that Lynch emphasizes gives me confidence in their credibility. So, yes, a good stock picker can be found in anyone. Lynch is not alone in suggesting that amateurs can be successful.
Although I might be just one person, my experience backs the claim that amateurs can be good stock pickers. I’ve made mistakes but I’ve done pretty good so far. If you want to learn more about how you can become a successful investor, be sure to subscribe to my FREE newsletter.