On a whim, I recently picked up the updated version of One Up on Wall Street by Peter Lynch after finding myself in a bricks and mortar bookstore for the first time in over a year. For those who may be unfamiliar with Lynch or this book -- and I can't think there are too many individual investors out there who are -- One Up is a bona fide investment classic. It's packed with all kinds of practical, common sense advice geared toward the Main Street investor who is trying to beat the Wall Street pros at their own game.
Like most investment books, One Up is divided into a few general sections with chapters devoted to specific investing concepts like how to research stocks and how to build a portfolio, but the overall structure is decidedly loose. Lynch doesn't go about posing arguments and propositions and knocking them down in any systematic way. Rather, he just lets fly with one real-life experience or observation after another the whole way through the book. The end result is a tidal wave of historical perspective and personal insight into what Lynch considers to be the "art" of investing.
Eleven years after its first printing, One Up remains an endearing book for many individual investors, this one included. One of the reasons why the book works so well is that instead of just talking about his big investing wins over the years -- including the "ten-baggers" that rose ten times or more in value -- Lynch repeatedly brings up the huge stocks that he's missed as well.
Humility is rare in investing books, but Lynch can't seem to write more than two pages without bringing up some stock he overlooked that eventually went to the moon. Even the introduction to the millennium edition of One Up points out how he missed some of the biggest multi-baggers of the 1990s, including the likes of Microsoft (Nasdaq: MSFT), Cisco Systems (Nasdaq: CSCO), and Paychex (Nasdaq: PAYX). His wife actually nudged him toward that last one, but he dismissed it anyway.
As someone who only became interested in stocks after having the great fortune of hearing Lynch speak first-hand at an investment conference in 1996, I'm too early on in my investing career to know how it feels to have a ten-bagger in my portfolio. However, I can connect with Lynch on the idea of missing scads of stocks that eventually turned into big winners. I've seen plenty of those, even though I've only truly been an investor for a few short years.
Want an example? Just as Lynch ignored his wife's mention of Paychex, I didn't pay attention to my future wife's tip-off about a medical technology company called Stryker (NYSE: SYK) two years ago. As someone who works for a group of orthopedic surgeons, she was intimately familiar with the firm's products. She talked regularly with the sales reps, and they were always busy racking up new sales. This was a good company, she let me know. When Stryker bought one of its big rivals in late 1998, a Pfizer division called Howmedica, the story got even better, although the firm's growth rate took a short-term hit.
Of course, I didn't pay attention to any of these things. I put Stryker on my watch list, but didn't get around to digging into the company until almost a year later. I liked what I saw, but once again I decided to sit on my hands. Since that last little brush off in October 1999, the stock has doubled. That's not on the same scale as missing Paychex's 35-fold rise in the '90s, but it's a missed opportunity nonetheless.
There have been bigger misses than Stryker. There's Apache Corp. (Nasdaq: APA), the oil and gas producer that I looked at seriously but didn't buy in early 1999 when oil prices were in the dumps. They recovered and so did the stock, which has soared 250% since then. Or Trimeris (Nasdaq: TRMS), the small biotechnology firm I thought was onto something in 1999 when it could be had for $12 per share. I watched that puppy climb all the way to $80 by last November (although it has given back more than 40% since then.) Or Nine West, the name-brand shoe maker that dropped below $8 per share in late 1998 and ended up getting bought out by Jones Apparel (NYSE: JNY) less than five months later for $26 per share. Mistake, mistake, mistake.
I balked on all of these companies for some reason or another. (And don't even ask about the dozens of Internet and networking stocks I looked at but then passed on over the past few years. Even with the Nasdaq's pasting in 2000, there were more multi-baggers in those areas than I care to remember.) Sometimes, it was a lack of understanding about the company or the industry that kept me on the sidelines. Other times, I wasn't so sure about the fundamentals. That was especially true with Trimeris, which was -- and still is -- a development stage company that doesn't have much in the way of fundamentals at all, outside of the cash on its balance sheet and a promising lead product candidate in Phase II clinical trials.
Given this poor track record, you may be wondering why I'm still trying to invest at all. Lynch sums up my attitude toward missed opportunities fairly well at the end of One Up with one of his many well-known investing one-liners: "You don't lose anything by not owning a successful stock, even if it's a ten-bagger." Investors who feel they have "missed out" on some of the many highflyers over the past few years can take comfort in these words. I certainly do.
By balancing his discussion of big winners between those he owned and those he missed, Lynch reminds investors in One Up that long-term investing is not like Pokemon. When it comes to ten-baggers, there's no reason to think you "Gotta catch 'em all!" Just two or three in a lifetime will do. And if your investing timeframe is measured in decades as mine is, then you have plenty of time to find them. I'm pretty confident that I'll happen upon a couple multi-baggers of my own someday, so long as I remain diligent about looking for them. But over a long investing career, you'll probably miss 20 or 30 big winners for every one that you'll own. Lynch has the courage and humility to admit this. As long-term investors, we should follow his lead.
This article first appeared on Fool.com in January 2001.
