Beating the Street

170 Pages·2008·12.52 MB·English

‘Beat
the Street
LSU wy Pern Laven

One tip on Wall Steet
(outth Jon Nonetid)

BEATING
THE STREET

‘The Best-selling Author of Que Lip on Wall Street
Shows You How to Pick Winning Stocks and
Develop a Strategy for Mutual Funds

PETER LYNCH
with John Rothchild

A Pee Lk,
Published by SIMON & SCHLISTER
(Copydght 1 1998, 196 by Pot Lo

itera
inegomg ei pans hs

of Son & Sener Un

Design ovngPtias Asien

vay ot Coup Gata ogg in Dulin Dt fmol a

Ign ar ris
Gs feb)

ACKNOWLEDGMENTS

Th Jobe Revhehild far Ns urvaringtnleny, art ork, rd Bove
tooino, whe crbiow Cine Epon Wal Sree aad Beans he See

“Th Pegs Malaspina, who challenged every as. motion awl played
fs emesl aale in sheping the eas Ja feth nf These bockst aac "e
her reseorch tal. whe worked overlie asseniblaug dat at chock
ing facts: Davia Shorman and Androw Wei, huekza 4p 25 Michael
Graber, Chikstine Coyoe, Lya Thadden, and Erik Mast

“To eabpluyees at Fidely, poacieuhsy ny associate Tvelyn Flya
hut asp Hab Hil ond the staff of the Fidslte Chart Roem, Guy
Cenundolo, Bab Bechwitt, Laxel, Alaasiaith, Pai. Thay, and
Jaugees Poni

Kor searerire out the face, no ene boats the dedicated stu a
Fidelity’ Fexed Inoue and Equity Rescatch Inforwation Centers,

pevially Shawn Binion, Racer: "Tooke, and Stelle Collins. sf
Tiel eng Clussenpher Gecea in the Maas lntormrion sat
Analisis Group provided nreny of the charts and performance
‘ealenlntams,

Algo thanks t cditey Bob Beuvr, his asistentJolueupa sop
supervisor Gypsy da Silva. au copy’ eins Steve Messi af Simon
© Schuster.

“This hoale wore not have: hanpened shea the effares nf Tow
Cowes Foglitereey agen als eves el he paepanal Maron
fie vations tages.

“ohn Teoltehild thanks hi egont. lisbeth Paehanati. We was
‘snl in Mion be Brvse Lemme, a plays ave, game of de
Plloate brides,
DEDICATION CONTENTS

Te my wife, Carolyn, al our dnigtaers, Mars Annis, ond Bech

Ta my brothers, Eugene ixnch and Phseuts Lycee my Pana i
Cov Fm so Penrace remy vane Pantie Homo UL
tie Sheaczer St As a |
ve Sie Weeki Wom » |
ones Taan nant Run He aan
ber Minne Macruait Tor ans Yeas
Maoeusey: tne Minn Years mt
: Nac, aU aan Yeas ne}
' Am, Sous awe Lacon’, 10 i
Severe pon Sos. Fim Kean Some 10
ow Prawecis Bab Nis: Hoot ;
sCortaase Roy. Paty be Me i
Tron J, SenauT Nozssty, awe Gwen. Tost 140 ll
os Mi Crowe Save av Seneeeurs mi
‘ eave Buussomss in ah Dustin: Gane Comianus 1X li
eaves $4 Wenn Me mf
foes: A Cats Lu arta SRT os
- cmon Magen Lair Paresrasars: A Dar '
cain a!
rem: Tne Cau: WH ors Ar Comes i
pea 23
vows: Nines we Drsaess: CMS enti 2s
4 Gumente

Uncrr Saws Caan Sates
Alun Cartas T

My Fania Mae Disa

“Tatasi.a6 1s pre Bacesaan Tas Chaos
Gaoerar Matuan Foor

Tae Rucragnan Stucxs: PUsnist 00
Mons Waure Four Mocr

Tre Six Meret Ciccxur
28 Govoms Runes
Postsrsart

bors,

PREFACE

1 tarved oif xy Quotaon af te Tilly Mageibon Poed oa Mey 3.
(019. Thia war exactly 13 yours stom the duy | took theo. Himes)
Cactor #35 president back then, aed ie adowited to having Wut ia
ie heart € ad hist in ayy het well—tet for stocks, Ea the sn)

Tfigave Fd purchased more than 15.00 of them for investors 10
Magetina—and viene neyo than once. No weader I'd guton 4

‘lation Doe vowed living at a hau 1 ide Fk

“My fepurture vase, Bul it was aumvething € creamed up
‘eccrright. Tho 199K wf Rooping track vl so mang companies a
tee fo tae ts cell By mi-ceeade, a8 the Liow ic 0D and T hit
438, As much a [enjned micmmgiag aor GaGo Lae seo the GE
Dt Ronndor. Tisted being fisme in weteh tbe ciltren g50W op.
‘ey chaage tase. They almost tac to iuteodace themserses 0 me
very weekeua, | was speatimg more tne with Fane Mie. Vee
Mac, an0 Solis Me thag | spent with tiem.

‘When you slat lo vonfose Freddie Mac, Salle Mao, end Pause
Moe with nierihors of your faily. unui you remember 2,000 stock.
symbols but forget ths chiklen’y Birtadays, here's m good canase
you've Become tuo ¥rapsed Up in jour WOK,

Tn LUND, wita tac Greue Crrrectm of 1987 eceudy hind us une
the stock muvict sailing aloug sivoutaly, | was colearatiag my Att
bintulay wi my wife, Caolsn, aad ay dauphlers, Mars: Anse,
now Heth, in the mifele of eh uri, Thid w revelation. remem
bed dhat ay father bad dled! when he was 46 sears mk. Yor StH
to feel enuetal when you wealize you'>e ready oulised you patents
“Yon start to rocognizs thar sire only going 4 diy lc
‘bile, whereas youre ving to be dead fora fang ime. You ster
svashire yrs eden more schoo! mys aud shi meets antl aflerneon
‘cost games Yn rene you ae har vnhode cr hia csnahed exe
ise “Tish FP pent mote “ime al te oie.
6 Pesce

Tteicd 19 counines raps that “wy children rogue less of my
attention them Urey bad when thoy sere youages. la wy heset, 1
knew tie rovone jas tue. During the ‘ere iwos dey rush
‘uduod and dang inte “hives, and parents hav> to pate Thea Th.
hut patting up a toddler cakes less Gime aad offout dun helping
Adojosesnte wth Spimishsomesurk or the meh Ut we've forge
fea oF driving them for che wimtsenth tie te eke oss zourt ae
the shopping eal, ot ceassusing them after They axen dhe lest
bard racks from being foewgers,

‘On wockenels. 10 have aay hape nF keeping up with teomagoes ae
heir Fhangh's patears most Hstea their nti ud mae a pee
fanotory stab at reciemberigg vhs. zoyaes of rock groups, ad ao
fompaniythern to movies at otherwine no uclalt would ever ant
osee. Td ol aie, bt inlenqaently Saunec aye, Cay dling A Oy
dds tarine # Hivulsya of pepcrwork. On the rire ovcasinns 1 took
{he kids 16 fhe igovis a che pizza paeors, ookedtoran investment
tingle, Ts they sou inlets ane 1 Biz74 THe Thea stock
[wish 3 hada’t boupht. nnd Chi Chats, «stock Fw I ud

Thy 190M, Mary, Annic, and Bech had reached the ages of 15, 12,
anit, respectively. Mary was amay at hourdiig ser0nl and came
hho onty oa the exld weekoad, thy fall she plagcd in seven oer
gainer, and Va gotten en soe fast one. "that eae alin the year the
pai family Cin stn ears went an dhioe sate Te, WE: he
scrapbuoks cf aun dildven's accomplishments, sulled 3 piles of
nema thie haun’s yet bem pasted

"Ye nigh sac sty lat atthe orion, Teould be fond wctonding
fa meeting of une of a numbel of chayiable ana civ expmizations
fan yinoxs borrde Td volunleered Loserve, One these organi os
fut me on their investmen: zomunittecs. cking socks foe worthy
uses wa he est 91 all possible workin, Dut the demands ol my
rp hemo actvnes had continue to prom, right along with Ahe
Geoxands ofthe Biagollen Fuad. and of course my dangers. wise
aomenurk avignmats were gelling more dieull, unl whu hud 1b
be driven to more and more Iessons art neces

‘Meanwhile, 3 vas sesing Salle Mac ia em dea,
Carolyn, el had our mas! rrmantic nea terse we mekcoming
iv andl out of the svesrap. Ac ony amninal medical coeckap. 1 one
few us the doviog that the wtily exenese T gol stun fucking my
‘pec, 1 was aware that Lhadn’ real x book in the last AS momths,
In two years. Ta sven thiee operes, The Fiying Dsichnan, La Bo-

Poole

heme, and Foust but acts single Coetoall gue, Thit eas mie 0
Peters Principle #1

‘When dhe opetasoutsumises the football yames bree.
fo-20, ombnow there is someting wrong wich sour
i,

fy mn. ily el sa eo ju Had 108
cettontered thay wy func's npeaketorimaud Magels. led
‘Sc cyt. yruote fn i he Peis aLaongh wi ap
ocdt nfo sty yy nv) ach
Fase prone. Tlpeng to ow alee a the hao
Be sinehotaces me tah Ne Toca, my n° Fee
JI sean Gary akon. De director a meron, ies
cnt ot

dur pewon was serightioronn and acabie. Ke} Sohsen
cugpenta snp ovasasoup nde or alse ty exe Cand
tet ogee we aeraleréind 40 aperat, ovo ath 200
fae wc ax opposed he > Dil th bah bad to
ope bul eu witha couple i digits che ft seem 1S
{elt now tend woul eine tc owe onto wk ane oh
fing Tate hack co sponrg Sauda ste ce. Tdetined

atemowns "0 mot ecole 1 tes bees suntng a8 bib.
empiyecs ponsim ln! nr seer UN Sorption, desing
edad Finda Rtn uth oak having tbe bres stoke, Ts
jpanon ual ada ton reco han Mogan Laer Twas ale
Peihcc tteonncy mou ns muy Feebieon. (04 ise, 8
peutton fu ay ato pat mre tan 5 percent is ase
‘Roa sale sock, wbreys nus om cou ae

Tho pple m Konak, Fors and alon wted re contin
snange het pension tory wet] st geen oro aT
Claes tcwraruscus un sso Stam oust Fei Fe
oten nuncsons offers totarea Lean, dowe-eod Yarty
Iited on the Rew Yuk Sock Eaclings. The eeulerbe promoces
Sahl hey soot boys of dalla? wrth ef Li Fett ares
finn uch vou bn fo a fo iti,

"That of stent ut fom the managers pon of
wis hth fal ver le RSI ase, AO lr
owbadiy thr manages peoras Thats Bestsecnzend cons
R Prue

ate (ted vn the sect exchanges. Just ke Merck or Polar or
nny shar stce’. For evry aller nt a eaerl-ent nd there es 10
be bujer, so the -nIber OF shaves always Kays the same,

Thos tent rue of au opet-eaded fund sucte Magelisa In #0
opencacted foie, when ¥ saatsholder ants 16 get Ou, the “sd
fest pay thal pelson che Yale of his or hoe shares in cash, and the
Size of the fond & reduce by that amos An nppepalst open
‘uel rust can shrink wry fast ais sustoriers ee to oli con
pling funds or 29 the maniey marke's. This s why the mumager of
fm oper-ended una! dig sku as seal ne ehe mana Othe
slosed eu kin,

‘4 $2 illon T yack Fund tated on the NYSL would havo-cartinued
to be # $2 bilo catnerice forever (ealess I aude 4 s0vies ul
Inorsenvous investment boo-huos aadl Joss dhe mone: tat wa). T
‘wold have continued 1) recive the 75 Puss panes (16 wiliony a8
rg anaval fee, Year in and ea ov

Te as a tempsing propestiou, mowee-ty. Togule: hase hia a
Innes of assists 70 pick stouks, rete! ay office ante “> 4
icignrly minions. plage poll speat wncer time wii ng wi at
nay children pls yatien 6 29e the Res Sus, the Celle, al La
“ome, Whether best she masket or lagged the raarket! I'd set
tase collected the same hafty yee

There sere cay awe probleme with this seangeuent, The fine
was that my toleranee Jr lagging the macact i Far exceeded by a
seria to outpertocu: i. Ths tecend soe that Tee ay, believed
fic mangers should pick their ww stoi, Once again, 1’ be
bark where E sartod, stack sm tae offee of she Lyne Fand ont
Sanudgs, tin piles of ns ¥epeets, 4 mse Sil Khir
Iwankoll but just as mae oor as ever

Te aways beoe skoptica! of mibicaaites who congracoaze dom
soles fer aiking omay fram a chance & epticl (heunolees ued,
Tiree ouc’s buck on 4 Cat Tutu pasctock fy a Juxuey dat Reve
oop car aloe. Bul vourre lucky enous io ive neon resend
Fr life wo the dograe that Taso, Mare crimes # point 27 whi. you
Inave (0 declae whether 19 bevome a slave fo You net woth by
‘devcving the west of yur Wl To increasing Te Fok what ye
asvunolael eg 19 16 You.

‘Tete Tela soty viel involves au ambiuDLs lanier. A gone
ct some sort offers hum all. the Jan rhe he sam encircle en foRt
‘day, Altes cupniag at {Ul speed for severae hours. he aoyuires
several squane miles of soluable property. aie wil than he coved

Pasties 9

(itm iotime, ere dap snewgh er make hice od i ats ect
{or gerenitions, The pou lullon is creachce with swet ad gasping
fur breath, Te thnks bem stoppin -aet whal’s te pout of going
any forther?—bai he cant help bless (He agesih=ud wo acosesize
Tis oppertuuits. waul finally he crops dead of exavstion

"This was Une ening T hoped te avon
PREFACE TO THE TRADE
PAPERBACK EDITION

“The gubliestion of thiy paperback sition gives me a chator ta
reeponl woe bsubsar Lat Eom the haces eto, Bath oma
the ptess ad frome callers an ats-night rio ean shows,

“Thee ace points Uthat that } vaca quite “catilly che
anfoor adiion ‘on that ihe reviewers Save aever mentor
‘here aro cthor soimls shat eanyht ihe reviewers fancy tae Une
imcended to nme a al. This why Tim delighted eo hove ia aw
tevinue, whens [ean cormeel whit T think ate dhice
akwoncopeons,

‘Aa the te of ay Her Ale ome tha pute Lye 92
the Bebe Ruth af Jawsting, calbing down 0 ths Hlke Langer sn
ving them the fake hope chat they cna perfommn like Big Levante
Jrolesvivmals. The Bale Ruth otapation. aithugh (atteting, x
Sereug au bo wank Hist, ve sunk cu! on grouental out a loo
filet toe beanpaned To the Suan of Sel, Seeumd, Fleeing,
fhe Tile Teaguers, 3a. emi festars be ssetage investors or
the geaeta! pULNG. sould even ty © unitare the Wig League
roto

‘Whar Pe ied aa gor acrass:¥ thr the aveCegE amPESHOL smi
the same Betpara ith ibe Wall Sore etal 4Ulxl Or pemset-tund
ianagers "he india! i feo at ot ofthe ss thet make Be
‘vat forte professional, Asian average invstes. you dew Mave
{6 anim enone than @ bumdful vf alocks aed ya sun do the research
2 your spare sine. IF nn company appeals to sam aT =e ueue,
yout can slay in ead) and’wail fur a borer opporlumity. You den’
Ease w oorepete with the ncighners, ths wap proteinase. hy
ublcaigg your quarteciycesults inthe local shoppe
12 Price me Trude Papert Fon

Proof ths rig meatoscan do quite wef Sor emis, Mee
ihe hana ibe weigh oem te radeon, cms tt te
AGG, teens al foprats L000 loaded
{bs ta sre male np of tay men ad women Accs
tothe Nate 384 pxcest tn oe ahs mage opr
the SRP tn 192 More tn has hee ce have Denn he
SE net epee ee ee
Sloe te gag mo seat pking seks Bahay fal 3
vantage of incir umiateur status. , taking fat ad

Tom hc nel ss nsec, proba heen you
have ako eiowed yout rund ehanage of fe a ea
3 te ce ou ty so a ae
ent sents hat Ball Soon ae he ae. Theo
Ropgabe er oft na spang task au S803 poms
‘rider Ut negro eons rs

Paseo #2 & th Lyte tke etsy sd Wout
tuore it lendheld eeu. resthag lane set esa
ing eunganies, ar buying, stacks. In uct, mikions of Americans shor
‘hace ing sks These se nthe ents
WS Mcsing crassa cag gt nance eel
tebe heh eng sara resol espe e se

‘ing go cn dnt nen comnts Sy en meting set

Chior Rowan niger Ae
tas an ht sexe tae the op mato gl a sat ok

Ueto prtring, Hut when poop cn tty wee od ot
biking tees ti ane My ta eons ore

Toop who “yn mb goutl wt picking stocks 2x0 He sery Ps who
sop ha eye pag oe tt on Fito a pune hen
“play the make” jv te locking for instant gradient, without

Nintog te fn ok, Sacre nekug the ee an ones
liom sin, sone eek, an tr she ne re

ngs ate tone

Thao he ket ancy Hauspie pais Pagers of

‘ne maet muy spon newts studying thet frowuer! er prin,

pov we vl gles oat tsaefly nop vat bat

Sent arad et es $10 0 in acon cs Lay et

ing ato: Liu ovr who ener na let el gt

tahoe hat. Tee pes sb

Price nas Trade Hoserbac alo 1S

“Thisisu group Pd Ske toadiens, the chronic sere witha Eatery
cf yaya, tit marches. They bray IBM ot SIOO @ share beemtse
tigy seine is events for 4 vormebyek or they buy » hgech stock,
pa riverbuat exsing sok Luause they've buard i's bot”

Whulewer Ley can savage froma those Tews they sin ante Art
setirmark tunieeso¢ eas apts the SSP B90 neces they best
w Teeny dat the Ss 8 ing up dhs vem, Tn tho wre he’ e
‘we cluninced than esti thal Wall Stroct Ts a gaute, but Cat's
because they've nuzde it one.

‘Mibcemceplion #5 6 hac Lytc hus i jn for minal fo. Why

WT Din the anc Us fe ene 39? ts mnt Runde 016
The perfec seen for people whe vom. to wn stocks sithuw!
ong thelr owe yeseardtTnvesfovs in oly uses hase peosnesed
Mnmckomely m the pests @ there $0 geason 10 veh ey will
nto prog ti he RUDE, Ltueees cue thas y can"!
hon individu wocks cn ratal funds, There's 90 rule that yoo
eaire cui several nmmval fons von War ety ne 1 fs 27
feat the malke? average the Foug-tern Tsuls ate fkely (6M ali
Fong, The shox: term seslts ae loss pedicle, which sy yor
Sumuklert bay equity ula] ns goles you know you can Wave
ye rey Hers for sexcrat years su relerate tbe wpm apd dors.

"Pon rhocred bie he svidenze that inivkduas investors ae Loxtning
pot to pet seared cu ef Uueir socks oF hes equity arts foods
uring markss socection, as occurred in October 1987, There Yas
see parind 41 103d hen ths Des Jones Tndnstial Averige
Sopped 200 poise and axerher hg drop of 502 oats fm 10 ot
fr rath cices the getwral public sas # tet beyer of stocks in dhe
Tieravath, S» neshaps te iessage abou. corrections Reine mW
Tovar sqoumtorms. and noe 118 em ol the World, is hegaaing to

‘Gue inessage chat ac’t suk in, appatemt, is tha in PS
sun owning owas ie more remar i pu encsing boucls 3d CD.
Teccrly, far diemned to livcowes that i te serrereut acco ants
that livctands of people have ypsned aay ven rm, Fit, only
TRantll peteentage at the sig ix iwestel fo pue egy ands

Mowat ine gene inlo money mazket funds. x end Chas. tbe
aly cou fencs, Met Hiatory shows shat over a Aang period of
cant sets ai gio much faster whee taoy 12 100 praceneinsestcal
i monks. “lie elinueat axoynt is Poe perfect place Gor stocks,
hecnuse ME fenasy eal there anal grow Lor 1 69 0 yoory
INTRODUCTION

Eseupe from Bondage

‘A sotto Gand axnages in ied oy give wily inst vie a
Spiutaan advice, Gowan dasives usu veal He wala tbs
uuprieyin tae congestion cnmtimicta favor hands. Osis. be
ss haw: slope Deongls Hs Tat secotan, Ce Ep on Fal Steet. th
‘whieh Kwied 2 plese neve and fol al hat peg one i sucks
{far moe protsme shun porting i nin bowls, eerifestox of dc-
Post, ar mouey-market recom, Orlcrsite, uy are 90 petuent oF
the muhon'sinvesteveal dens stds pasked wn Une ineior 9pols?

rooghouc tre WWD, ashich aris the ssoomchbest ceade: Lor
stocks in sodern history (only the LB5Ls wee sighuly mute boun-
ul), the percentage of houselol assets vested in sticks celineds
‘This perecutege. in tact, has boon declining stony. —itoon ncarhy
B® percent in the 19605 1025 percent in IBRD Lo V7 percent i LINO.
Asthe Dow Jones average and the other Mock Tokexcs quadtaglod
fnvsalue, a mas ofivsstars vs switching oUF of stocks. Even aes
invested in equity wulua! fonds shruw fem arsenal 36 percent in
198 40 & poseom in JO,

This cnanity for the Tulure of invidual and eaconed wealth
comol go unchallenged. Let re begin. then, where I tefl off the
lea ime if yo hope to hove piers now TemBoLr a than yon hase
today. sow'se uot 10 put a Ham of your ascis into stovks, eye
\NeTE ping itu # beur arket and for “he next tu yoarsar thos
years. even Fee are yonv Tish sal newer heart tore. Hou
The 3th centers or oon fl of Seay moakets. ot Lo meation
recessone, unl i spe 9 have the sevules are mdisptable: woner