One Up On Wall Street: How to Use What You Already Know to Make Money in the Market

Lynch emphasizes the importance of understanding a company’s story before investing in its stock. He states, “The next step is to learn as much as possible about what the company is doing to bring about the added prosperity, the growth spurt, or whatever happy event is expected to occur. This is known as the ‘story’” (174). Lynch says that beyond the classification of a company (like a slow grower, stalwart, fast grower, etc.) and its price/earnings ratio, investors need to investigate the specific plans and strategies a company is implementing for future success.

Lynch says that one should be able to articulate a two-minute monologue that succinctly explains the rationale behind choosing a particular stock. This ensures that an investor has a clear and comprehensive understanding of the investment. The monologue should cover why the investor is interested in the stock, what needs to happen for the company to succeed, and the potential risks involved.

He illustrates this approach with examples, discussing various company types and what key aspects of their story might be. For instance, with a slow-growing company, the focus might be on consistent dividend payments, while for a cyclical company, it would be on business conditions and market cycles.