One Up on Wall Street

Since 1977, Fidelity Magellan Fund has provided an average annual return of 28 percent to its investors. This outstanding performance has not come from armies of MBAs applying the latest investment theories to masses of data in ever-burgeoning spreadsheets. It has come from Peter Lynch, the fund’s manager, who, when he liked the coffee at Dunkin’ Donuts, did a little research on the company, bought the stock, and subsequently made a tenfold profit--a “tenbagger,” as he calls it.

Lynch explains how professional money managers are blinded by their own methods, which prevent them from seeing high-flying stocks until they have already gained tremendous altitude. He shows amateurs how to use their own perspectives--as consumers, as employees, or as ordinary onlookers--to recognize these stocks while they are still on the ground.

Lynch has no pat formula for investment success. His techniques are based on intuition, common sense, and experience, qualities that cannot be conveyed in cookbook fashion. Thus his book is highly anecdotal; he relates story after story about his successes--and failures--trusting that the reader will get the idea. Because of this approach, his advice is sometimes contradictory, so isolated guidelines may mislead the eager investor. For example, he advises amateurs to ignore what the Japanese are doing and to be wary of stocks with high-tech names, then tells how Fidelity Magellan made a sixfold profit on Micron Technology, a turnaround that had suffered from Japanese “dumping” of memory chips. Yet, when taken in total, he is as instructive when he is contradictory as when he is consistent.

It is rare to laugh out loud every ten minutes while reading a how-to investment book; Lynch’s stories and comments constitute the most entertaining prose to come from this genre in years. His good judgment, when duplicated, will reward his readers when they secure a tenbagger, while the self-effacing good humor with which he laments his bad judgment will comfort those readers when their tenbagger eludes them.