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So today we are going to talk about a very famous book by Peter Lynch called One Up on Wall Street. Actually we have some parts of a Hindi audio book script based on this and the most interesting thing is its style. Yes, this is not a finance lecture. no way. It's like a story. Like a friend, it takes you into the world of investing.
And this story begins with a very surprising idea. This breaks the notion that the stock market is a game only for big experts. Yes, and its opening lines remain etched in the mind. It is something like this. Imagine the big guys on Wall Street, even when they sit in suits with millions of computer engineers, they can't beat the market.
And the same normal man who goes to buy milk in the morning , who roams around in the shopping mall , the same man is one step ahead of Wall Street in the stock market. It sounds very good. But is it really possible? This is what we can say is the essence of Peter Lynch's entire philosophy. He believed that being a common man is our biggest strength.
Good. Yes. The information we gather from our surroundings , our workplace, or while walking around a shopping mall can be more valuable than an expensive report from an analyst. Meaning, Wall Street analysts read balance sheets and we use products. This is exactly your edge. It sounds very good. But how to use it in reality?
I mean, I go to the mall every day. I see new things. But it does not come to my mind that let's invest in this company. This is a valid question and the answer lies in the story of a character named Ramesh in that script. Ok. So what happens is that one day Ramesh's wife brings home a new washing powder and after a few weeks Ramesh notices that the clothes are getting cleaner than before.
The powder is also being used less and his wife is also very happy. And then he must have seen that the same thing was being sold in the nearby shops also. That was exactly his Eureka moment. This is where Peter Lynch's theory comes into play. What Ramesh saw was not on any computer screen. That was the ground reality.
So in a way, the shopping mall became your research lab. And the field of your society consumer survey. You are not looking at the market from the outside. You are living inside the market. This is the first signal that something special is happening at this company. I understand this. Meaning finding investment opportunities in your everyday world.
But suppose I find such a company, then how do I know if it is right for me. Not every company is the same, right? Absolutely. And this is the next and most important step. Each stop has its own story. It has its own character. And if you do n't understand what kind of story you're investing in, you'll have the wrong expectations.
Good. That's why Stacks is divided into six different stories which makes this task much easier. Ok. So what are these six stories? What is the first one? The first story is about slow growers. We are these big, settled, boring companies. As a large utility company producing electricity grows a little bit each year it will pay you dividends.
But it will not multiply your money 10 times. Absolutely. Ok. And the second story is the second stall. Hmm. These are big and reliable companies like Elephant. Think Hindustan, Unilever or Nestle whose products we have been using for years. Yes, it is safe. Pays consistent dividends. But you cannot expect 10 times returns from these also.
This gives stability to your portfolio. Correct. And the third one which would be everyone's favourite. Yes. The third is fast growers. We are these small, new, fast-growing companies. This is where multibaggers emerge who multiply your money. Good. The risk is higher in these but the reward is equally high.
And how are they different from the other three? The fourth story is about cyclicals. These are companies whose fortunes are linked to the ups and downs of the economy. Like auto, steel. Yes, cement companies. Hmm. When the economy is doing well, it skyrockets. But as soon as recession comes, these are the first things to fall.
Meaning timing is very important in these. Most importantly, if you buy a steel company at the peak of the economy, your money may remain stuck for years. Ok. And the fifth story is that of turnarounds. These are the companies that almost went bankrupt. It was on the verge of bankruptcy. But now she is making a comeback.
Yes. Some new management came. He brought the business back on track. This is a very risky bet. A kind of lottery ticket. You can say that if it goes away then the money will multiply many times, otherwise it will become zero. And the last last story is from Asset Place. These are companies that have some hidden assets.
What does hidden wealth mean? Suppose there is an old textile mill whose factory is located on a very expensive piece of land in the heart of the city. Now even though the company's business may be in loss, the price of its land is more than the entire market value of the company. Wow! So once we understand a company's story, our expectations are also set.
But everyone's dream is to find that fast grower who becomes a multibagger. Absolutely. And this is where the biggest deception happens. Danger? Yes. There's a very funny rule in the script. The big money is made not in already famous stocks but in boring companies. This seems completely the opposite.
Why would money be made in boring companies? There is a deep psychological reason behind this. Our minds run towards new and exciting things. We want to find the next Amazon or Tesla. No one thinks that one can become rich by investing in a company that manufactures drain cleaning chemicals. That's correct.
By the time a stock makes newspaper headlines, the smart money has already been made. Exactly. Real opportunities are hidden where no one is looking. So what then defines a good boring company? Just being boring won't be enough. no way. There are some check points for this. First, is the business simple enough for you to understand?
Second, is the company name a bit boring? Like Gupta Packaging. Big analysts do not pay attention to such companies. And the third most important thing will be numbers. Yes, do the company's numbers support its growth story? Along with the story being good, the data behind it should also be strong. When it comes to statistics, the first thing that comes to mind is the PE ratio.
Everyone says that a stock with low PE is cheap, buy it. Is this correct? Look, this is probably one of the most common mistakes. Good. Yes. Meaning, just looking at the PE ratio is like buying a car just by looking at its colour. That's correct. PE is useful only when you link it with the growth of the company.
Ok. Suppose the PE of one company is 10 and that of the other is 20. At first glance, the 10 rupee one will look cheaper. Isn't it? Yes. But if a company with a PE of 10 is not growing at all and a company with a PE of 20 is growing at 30% every year, then which one is better? Obviously the 20 PE one.
So how does growth fit into this equation? A very effective tool for this is the peg ratio. Peg Ratio Yes the formula is very simple. To calculate the PEG, divide the PE ratio by the company's annual growth rate. So if the PE of a company is 20 and it is growing at the rate of 20% then its peg is one.
This could be a good price. And if the growth is low, then suppose the PE of the other company is also 20 but it is growing at only 10%, then its PE is 2, which means that according to the growth, it is probably expensive. Well, the rule is that less than one peg is good. Yes, a peak less than one indicates that the stock may be undervalued.
It's a simple matter. Do n't just look at expensive or cheap. Look at the price according to the growth. This is a very useful thing. But after growth and PE comes the balance sheet and even the best of people start sweating after seeing it. And there is a very simple rule to overcome this fear. What?
If you can explain the business of a company to a 10 year old child, then understand that it may be worth investing in. But isn't that a bit too simple ? In today's world, there are many great companies like those in AI or biotech, their business is very difficult to understand. This is a very good question.
This doesn't mean you have to invest only in candy-making companies. This means that you should be clear about the fundamentals of any company you invest in. How does she earn money? How much debt does he have and does he have cash? Ok. It happens exactly like that. A company with less debt and more cash can survive even in difficult times.
So just look at the debt and cash on the balance sheet. Yes, is the company's debt decreasing year after year ? Is he running out of cash? If yes, then this is a sign of a strong company. You don't need to become an expert on every single number. This seems exactly like my own story. My first investment.
Yes, what happened ? Hey, I bought stock in a good company. It dropped maybe 20% and I was so scared I sold it all. Oh! And later the same stock increased five times. I still remember that fear. How to fight this feeling? This happens to everyone. And this is the hardest and most important part of investing.
Control your mind. Trying to time the market has been called foolish. No one can do it. Fear and greed are your biggest enemies. So what is the right mindset then? What to do when you feel scared? Here is a line that every investor should write down and put on his study table. Tell me. Do n't be afraid of the stock price falling.
Be afraid of the company going bad. This is a very deep matter. Explain this a little more. Most of us consider falling stock prices to be a business disaster. When the market falls, the shares of both good and bad companies go down. That's correct. But a common investor gets scared and sells even his good company.
Just because its price is falling. Even if the company's profits are increasing. So this mindset helps you to remove the noise of the market and focus on the reality of the business. Absolutely. If the business is doing well, a drop in price is a great buying opportunity. So if we add all these things together.
Finding opportunities in your daily life, understanding the company's story, looking at its numbers as they grow, and controlling your emotions. What is the gist of it? The crux of it all lies in one final secret and an action plan. The secret is you don't need to buy every stock in the market. Just two or three right decisions are enough to change your entire life.
This idea takes a huge amount of pressure off you. Yes, investing is a game of quality. Not of quantity. and action plan. How can we implement it in our lives? The action plan is very straightforward. First, keep your eyes and ears open. Make your everyday life your research lab. Ok? Secondly, when you like a company, understand its story.
See where she fits in among the six stories. Third, we check his numbers. Especially debt, cash and PEG ratio. Fourth, be patient. And fifth and most difficult, stay calm when the market storms. Trust your research. Absolutely. This is the last message. Wall Street has expensive machines. You have eyes and a brain.
If you learn to observe and understand the world around you, you will always be One Upon Wall Street. One thing comes to my mind every minute. Hmm, tell me. This whole method works very well for those companies whose products we see every day. Isn't it? Washing powder, shoes. Yes, B to C companies. Absolutely.
But what about those businesses that do not sell goods directly to us, i.e., customers, which are called B2B. That's the right question. Yes. For example, how would this Lynch method work for a company that only makes specific parts for large industrial machines ? This is something to think about.
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