One Up on Wall Street

 One Up on Wall Street is one of the great books on stock investment. The following are the summaries of what I understood after reading it.

Disclaimer

These are the summaries based on my understanding. There might be some variation from the actual one. If it differs or there are some information missing, please feel free to comment and provide feedbacks. I would highly appreciate it.

Introduction: The advantage of dumb money

Key highlights

1. There are outliers stocks which does way better than average one. If you are able to find and buy them, you can make N-bragger( A term which is famous in wall street which is lended from baseball. It means how many times you can make money).
2. You do not have to be an expert to find such stocks. They are right there infront of our eyes. For example, a product that in a grocery store that you like, or a retail brand which might be doubling its store every now and then.
3. The first step is finding such shares but the important step is to do research about them.

Chapter 1: The making of a stockpicker

Key highlights

1. You do not have to be a born genius to be an investor.

Chapter 2: The wall Street oxymorons

Key highlights

1. There are exceptional fund managers but rest are idiots.
2. The market is slow to recognise a growing company. Most of the time brilliant companies are not noticed by big financial organisations or analysts
3. Analysts are always in pressure to always outperform, and if they pick something different then they are answerable to a lot of people. They don't want to look bad when the market is worse. So, they will always choose from an approved list which contains stocks that have huge market capital.

Chapter 3: Is this gambling or what?

Key highlights

1. Bonds are not bad, especially if they are compounded
2. But on average and long run stocks pay more than bonds
3. There are risk with stocks but there are risk in bonds as well
4. Investing in stock can be compared with gambling but it is rewarding if you know the game. It is minimising loss when the market is not doing well and maximising when doing well.

Chapter 4: Passing the mirror test

Key highlights

1. Following should be considered while buying stocks:
1. Whether you are in good financial position. Don't buy it if you need for the short term
2. Whether you own a home. Investment in real estate is also a good option, as the return is good.
3. Whether you have knowledge to invest in stock. People do not have to be genius to invest in stock

Chapter 5: Is this a good market? Please don't ask?

Key highlights

1. People always prepare for the catastrophic events that happened recently. However, exactly opposite might happen. For example, if there are a series of bear market that happened recently, then people will anticipate it, but bull might happen

Chapter 6: Stalking the tenbragger

Key highlights

1. Tenbagger are usually around us but we are ignorant and ignores them.
2. People usually buys stocks in the field that are different from what they do daily.
1. People have better understanding of the market in the field that they are working. They know way before the financial analyst notice something.

Chapter 7 I've got it, I've got it--What is it?

Key highlights

1. Knowing a quality product from a company is not enough, you have to do more homework before investing into a company
1. You have to ask what impact does it have on the company itself.
2. You cannot expect tenbragger from a big company because of their size. But, small companies can reach that.
3. Companies can be divided into the following categories:
   1. Slow growers: Their growth is stagnant like a platue
   2. Stalwarts: Their growth is like hills or small mountains. You can make 30 -40% from them. They are good in crisis
   3. Fast growers: They are interesting and they can be 10 or higher bagger. But there are risks associated with it.
   4. Cyclicals Their profit or loss periodic in the ression or crash it can lose 80% of its value
   5. Assets plays There are hidden assets with this kind of companies which the market ignores, but this lack of knowledge makes them undervalued. If you are patient with them then you can make a lot of money
   6. Turnarounds These are like ‘Bajighar’, one that rebounds after dip. You can make a lot of money from them.
4. Organisations can change the categories over time so you have to keep update.

Chapter 8 The Perfect Stock, What a deal

Key highlights

1. The following qualities makes a perfect company
1. It might have weird name
2. It might do boring jobs
3. It might be doing something disgusting that other might not do
4. It's a spinoff, which mean it is a division in a big company which they could not manage and made a separate one
5. The analysts haven't noticed it yet
6. There might be some rumers about it, that makes people run away from it
7. It's no growth industry
8. The work it does is depressing, e.g. funeral services
9. It has some niche that makes it top of the game
10. People should keep buying It's product
11. It's a user of technology not the one that makes it
12. Insiders, I.e. employees, are buying It's shares
13. The company itself is buying its shares
    

Chapter 9: Stocks I would avoid

Key highlights

1. Hottest stock of the hottest industries. Some of the industries start to get hot becauseof the technology it uses, e.g. AI. But, over the time, it losses its niche due to completion
2. Companies that are labelled as next of something
3. Companies that try to diversify unnecessarily without the knowledge of the business it is acquiring.
4. Beware of the wisper or rumours stock
5. Beware of the companies that have few clients. It adds the point of failure.
6. Beware of the companies with flashy names. It is the opposite of companies with dull name.

Chapter 10: Earnings, Earnings, Earnings

Key highlights

1. The stock price of a company ultimately follows its earning
2. Another way of looking at price-to-earnings (P/E) is how many years does it take the earnings to catch up the investment.
   1. A slow growers has low P/E compared to fast growers
3. Market also has its own P/E which is high during bull market
4. It may be complicated to predict future earnings but we can definitely knows the plan to increase it. There are 5 ways for it
1. Reduce costs
2. Raise price
3. Expand into new market
4. Sell more in old market
5. Close or shut down losing operation

Chapter 11: The 2 minutes drill

Key highlights

1. After analysing a stock, develop a short monologue/story about the company you are investing in.

Chapter 12: Getting the facts

Key highlights

1. While investigating about a company from a broker, following should be considered
   1. Stock price vs earning for last 5 years
   2. Plots of P/E
   3. Any insider buying the stock?
   4. Percentage of stock hold by the organisation itself
2. While inquiring in the company itself, one should try to ignore adjectives about it. Based on industry, people may describe the same thing in a different ways
3. The appearance of company also tells about it. If a company is too extravagant, then it may be the sign that it might go downhill. On the other hand, if it is OK looking the people might ignore then it might be a good sign.
4. Trying a product first hand helps to understand about the company. It is a fundamental part of investing.
5. While going through the balance sheet of a company always lookout for
1. Cash and cash equivalents increasing or decreasing every year. Increase is a sign of good company and vice versa
2. Long term debts. Decrease in this number is better
3. Whether cash and cash equivalents is higher than debts, which is a good sign
4. Whether number of outstanding shares are decresing. It indicates that the company is buying it's shares.
5. You can also get these numbers from S&P report and value line reports (But this applies in US markets)

Chapter 13 Some fabulous numbers

Key highlights

1. P/E ratio roughly reflects the growth rate
   1. P/E less than growth rate is better
   2. Ratio of (Growth rate + dividend yield)/ (P/E) greater than 2 is better.
2. Net-cash-per-share, I.e. (cash - debt) per share is a good indicator. Higher is better.
   1. How company uses its cash is also important to know.
3. Equity-to-debt ratio (higher is better) is important for the company survival in its downturn.
   1. Types of debt is also an important factor for a company survival
   2. Bank loans are risky as lender can pull out anytime
4. Dividend is an important factor
   1. Companies that do not pay dividends may end up in deworsification
   2. Dividend paying companies does well in bear market
   3. Small companies do not pays dividends to expand
   4. If you after dividend then invest in companies that have the long history of paying dividend
5. Book value is the actual value of a company, but it is somtime illusive.
   1. If you are buying based on book value then you should know what that it actually represents
   2. Sometimes it is overvalued and sometimes it is undervalued.
   3. There are hidden assets in undervalued companies. The hidden assets could be
      1. Lands or raw inventories
      2. Stock in other companies
6. Free cash after normal business operation is also an important factor
7. Accumulating inventories company is not a good sign
8. Growth rate in earning is very important. A company with high growth rate and P/E is better than company with low growth rate land low P/E
9. Pre-tax earning rate or profit margin is important in evaluating a company.
1. It is better to invest in a company with higher profit margin for long term investment
2. For a turn around it is better to invest in a company with low profit margins

Chapter 14: Rechecking the story

Key highlights

1. Every companies have three stages in their life cycle
1. First is the initial stage where companies tries to establish itself
2. Second is when it tries to expand its business by duplicating its success formula. In this stage, a lot of money can be made
3. Third stage is the saturation stage where it had reached its limitation and there is no room for further expansion

Chapter 15: The final checklist

This is the summary chapter of Part II ( Picking winners)

Key highlights

1. Net cash position is important for a company survival
2. Investment in slow growers is for dividends
   1. Paying higher percentage of earnings in dividends is riskier
3. Look out for P/E ratio, deworsification and long term growth in Stalwarts
4. If you know cyclical it is better.
5. For fast growers lookout for
1. Product which is popular has major proportions of it.
2. Growth rate is 25-30%
3. Room for growth
4. Selling at P/E close to its growth rate

Chapter 16 Designing a portfolio

Key highlights

1. Having many stock is good
2. Slow growers are low-risk low-gain
3. Stalwarts are low-risk high-gain if they are bought at right price
4. Fast growers and turn around are high-risk high-gain
5. Keep some stalwarts to compensate the risk of fast growers
6. Portfolio design may change based on age
7. Rotation of stocks is a good strategy than converting to cash
1. For fast growers, cyclical, rotate the stock whose fundamentals does not sound good and price going up with stock whose fundamentals is better and price is low
2. Keep fast growers as long as the earnings has gone up and story sounds good. Check every few months

Chapter 17 The best time to buy and sell

Key highlights

1. Good time to buy
   1. One good time to buy is during end of financial year when people might want to sell for tax gain or whatever reason
   2. Another good time is when the market is crashing or there is bump
2. When to sell slow growers
   1. When dept is more and eating cash
   2. Deworsification
   3. Market share of the company is declining
3. When to sell stalwarts?
   1. When P/E is higher than growth.
   2. P/E is higher than for other companies
   3. No internal buying shares
   4. Growth rate slowing down
4. When to sell cyclical?
   1. Inventories are accumulating
   2. Commodity price and competition are increasing
5. When to sell fast growers?
   1. When the growth phase ends, i.e. it has hit its limit
   2. P/E is absurdly high
   3. Dept increasing suddenly
   4. Inventories increasing
6. When to buy assets play
1. When raiders (big names or organisation) start buying stocks

Chapter 18: The twelve silliest and absurd things that people say about stock prices

Key highlights

1. If it's gone down this much it can't go much lower.
2. You can always tell when a stock hit bottom.
   1. When turn around goes down it rattles a bit then goes up.
3. It's gone this high, How can it possibly go higher?
   1. If the fundamental are right, there is no limit how high a company can go.
4. It's only 3$ a share: what can I lose?
5. Eventually they always come back.
6. It's always darkest before the dawn.
7. When it rebound to 10$, I'll sell.
8. What me worry? Conservative stocks don't fluctuate much.
9. It's taking too long for anything to ever happen.
10. Look at all the money I've lost: I didn't buy it.
    1. Do not tag missed opportunities as your loss.
11. I missed that one, I will catch next one.
    1. It is better to buy good company at higher price than a mediocre in bargain price.
12. The stock gone up, so I must be right, or The stock gone down so I must be wrong.

Chapter 19: Options, futures and Shorts

Key highlights

1. Option are not good investment options.
   1. Options works for short term only.
   2. Options do not contribute anything to economy.
2. Shorting a stock.
   1. You lend from someone and you sell at current price and return later.
   2. If the price drops you are a winner, but a big time loser if the it goes up.

Note

1. deworsification: diversification gone wrong