Non-fiction: Beating the Street

Overview

Peter Lynch lays out a practical, experience-driven approach to stock picking based on his tenure running the Magellan Fund. He blends vivid case studies from that period with clear heuristics that individual investors can apply. The narrative emphasizes that successful investing does not require insider knowledge or complicated models but does require observation, discipline, and a willingness to do straightforward homework.
Lynch champions a bottom-up, company-by-company method, illustrating how ordinary investors can spot opportunities by paying attention to everyday experiences, industry shifts, and basic company numbers. He discusses how he researched companies, evaluated industries, and built a diversified portfolio that, during his management, consistently outperformed broad market benchmarks.

Core Philosophy

The central creed is "buy what you know": use personal experience with products and services as the starting point for investment ideas. That familiarity should lead to fact-based investigation rather than blind reliance on tips or hype. Lynch insists that every investor can form an advantage by noticing profitable businesses at work in their daily lives and then validating those impressions with financial analysis.
Simplicity and common sense guide decision-making. He warns against overcomplicating the process with impossible forecasts and stresses that a clear, believable story behind a company, supported by healthy fundamentals, is more valuable than elegant but ungrounded models.

Stock Categories and Selection

Lynch categorizes stocks into types, slow growers, stalwarts, fast growers, cyclicals, asset plays, and turnarounds, and tailors expectations and strategies for each. Understanding which category a company fits helps set realistic return horizons and risk tolerances. For example, fast growers may justify higher valuations, while asset plays might offer hidden value through balance-sheet strength.
He popularizes simple valuation tools, notably the PEG ratio (price/earnings to growth), to relate price to expected growth. Valuation is relative and contextual: a high P/E can be reasonable for exceptional growth, while a low P/E may mask structural decline. The key is matching price to the company's growth prospects and competitive position.

Research and Analysis

Fundamental, bottom-up research is paramount. Lynch advocates reading annual reports, studying balance sheets, following earnings and cash flow trends, and watching insider activity. Earnings consistency, manageable debt, and a durable competitive advantage receive special attention. He also recommends "scuttlebutt", talking to customers, suppliers, and store managers, to corroborate the investment thesis.
Quantitative checks are complemented by qualitative judgment about products, management integrity, and industry dynamics. Lynch emphasizes that a clear, repeatable story must be backed by numbers; if the story unravels or the numbers deteriorate, re-evaluation is necessary.

Portfolio Management and Selling

Diversification is important, but Lynch warns against "diworseification", owning so many holdings that meaningful monitoring becomes impossible. He explains position sizing and the need to spread bets across industries and stock types to manage risk. He also describes practical buying tactics: start small, add to winners, and be patient with compounding.
Selling rules are pragmatic: reduce or sell when the original story breaks, fundamentals decline, or the stock becomes dramatically overvalued. Emotional and market noise should not drive sales; instead, follow disciplined criteria tied to the company's real business performance.

Lessons and Legacy

Lynch combines optimism about individual investors' capabilities with sober reminders about the work required. He popularized accessible concepts and demystified professional investing by showing how structured curiosity and basic accounting can yield strong results. His anecdotes from the Magellan Fund bring the approach to life and demonstrate how varied paths, observation, number-crunching, and conviction, combine to produce long-term gains.
The lasting appeal of Lynch's approach lies in its blend of pragmatism and accessibility: paying attention, doing elemental homework, and treating investing as a logical, learnable craft rather than a secret art.