Is investing in stock market an art or science? What Peter Lynch says in 'One Up on Wall Street'

While the stock market may seem like a complex world of numbers and charts, legendary American investor Peter Lynch views investing in stocks as an art, not a science. He believes those trained to rigidly calculate everything may actually be at a disadvantage.

Peter Lynch, who popularised the concept of finding tenbaggers, said all the math one needs to succeed in the market is taught in the fourth grade. "If stockpicking could be quantified, you could rent time on the nearest Cray computer and make a fortune. But it doesn’t work that way," he wrote in his book titled 'One Up on Wall Street', which is widely read by stock market investors.

Not maths but logic is the subject that Lynch says has helped him the most in picking stocks that could deliver stellar returns. Most importantly, this is because it taught him to identify the peculiar "illogic" of Wall Street.


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Peter Lynch says Wall Street similar to ancient Greeks

In his book, Lynch went on the compare Wall Street to the ancient Greek civilisation. “Wall Street thinks just as the Greeks did. The early Greeks used to sit around for days and debate how many teeth a horse has. They thought they could figure it out by just sitting there, instead of checking the horse. A lot of investors sit around and debate whether a stock is going up, as if the financial muse will give them the answer, instead of checking the company,” he wrote.

Lynch like other legendary investors has explained that no one can predict what will happen in the stock market. He said that those attempting to do so on the Street were similar to those who believed that sunrise only happened after the rooster crowed. “It sounds silly now, but every day the experts confuse cause and effect on Wall Street in offering some new explanation for why the market goes up: hemlines are up, a certain conference wins the Super Bowl, the Japanese are unhappy, a trendline has been broken, Republicans will win the election, stocks are “oversold,” etc. When I hear theories like these, I always remember the rooster,” he said.

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Peter Lynch's tenbagger formula

During his tenure as Magellan’s portfolio manager, Lynch bought more than a hundred '10 bagger' stocks, including Fannie Mae, Ford Motor, Philip Morris International, Taco Bell, Dunkin' Doughnuts and General Electric. Amid the noise, Peter Lynch advocated focusing on finding potential ‘tenbaggers’ instead of making excessive trades. As Peter Lynch puts it in his book 'One Up on Wall Street', “All you need for a lifetime of successful investing is a few big winners”.

Tenbaggers typically are not the companies everyone is already talking about. They instead are often overlooked gems that one discovers through research or personal observation. While Peter Lynch advocated for buying shares of companies that one knows well, he warned that this should be done only after proper research. One should not just buy the shares of her neighbourhood restaurant or her favourite clothing brand just because she sees a long list of customers there every day.

This should only mean that the company should be added to her research list, and she should invest only after properly knowing about the company’s financials, growth prospects and more, according to Lynch.

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Disclosure: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.