[2025–2026] Week 14: One Up On Wall Street by Peter Lynch
Reading assignment and questions for week 14 of the Value Investing Seminar
(Note: If you are just joining the seminar, please start by reading the Introduction)
Joel Greenblatt wrote the seminal book on special situations investing that is highly relevant to this day. The key idea is to think about why do mispricings occur?
In the case of special situations, it’s one of two reasons: forced/uneconomical selling or neglect. Some examples:
A less attractive small division being spun off, leading current shareholders to sell regardless of price
Using long-dated options (LEAPs) to take advantage of corporate events with high upside and limited downside, as I recently described in the case of Warner Bros. Discovery (WBD)
Post-bankruptcy equities that are neglected by the market
Now contrast this with what is usually being pitched to you by brokers and media:
Popular companies that are in hot sectors and/or are doing really well right now
IPOs or secondary offerings where management chooses the timing, dresses up the financials and hires an army of bankers to spread the word
Stocks with high recent price momentum that leads to FOMO among many investors
The first set of securities clearly have a much higher chance to be mispriced. It doesn’t mean they are. Nor does it mean that the second set are always bad investments. However, Greenblatt leads us to a rich hunting ground, and now it’s our job to find ideas within it that are attractive and fit our circle of competence.
Note: For those who want to read ahead, our next reading will be John Neff on Investing by John Neff.
Week 14 assignment is to read One Up On Wall Street by Peter Lynch and answer the following questions:
Question 1: Please “map” Lynch as an investor on as many dimensions of an investment style as possible.
Question 2: What about Lynch’s background and circumstances made his approach the right one for him?
Question 3: What are your favorite Lynch investments? Why?
Question 4: What are your least favorite Lynch investments? Why?
Question 5: What are 1 or 2 stocks that Peter Lynch might find attractive in the current environment?
Question 6: Come up with an AI prompt based on Peter Lynch’s approach
Now it’s your turn:
Submit your answers in the comments below this article with all your answers in a single comment. I will engage with some of the answers each week and highlight some of the ones I find most insightful in next week’s seminar assignment article.
Engage with the answers of some of your fellow seminar members in the comments below. Remember – the goal is to learn together. Be kind, be respectful and try to add to our learning as a community.
Feel free to ask any questions about the reading in your comment.
Until next week,
Gary
About the author
Gary Mishuris, CFA is the Managing Partner and Chief Investment Officer of Silver Ring Value Partners, an investment firm that seeks to apply its intrinsic value approach to safely compound capital over the long-term. He also teaches the Value Investing Seminar at the F.W. Olin Graduate School of Business.
Q1:
https://docs.google.com/document/d/e/2PACX-1vQqHVIK2mg9l-aQqXN2u-7XE2wdLh5cxCxfaLu37WpWtFFgJ19Q7uIF5jUf-w341-RgmipiEXJ3DNOU/pub
Q2:
The financial hardship of his youth translated into aversion to overpaying and need/value of hard work. He didn't whine about research. His caddie experience, constantly being around businessmen and listening to their conversations, embedded in him the value of firsthand research and investigation. He learned to be choosy about who he caddied for, almost like stock picking. He says, "If it came down to a choice between a bad round with a big tipper, or a great round with a bad tipper, I learned to opt for the former." This sorting resembles how he categorized stocks. In college, he developed the 'art' side of his brain which probably caused him to lean more qualitative than quantitative. He said that his studies of history, philosophy and logic helped him more be more successful in investing than his MBA did. "Investing in stocks is an art, not a science, and people who've been trained to rigidly quantify everything have a big disadvantage."
Q3:
La Quinta Motor Inns: An alternative to Holiday Inn that delivered the same quality but in locations where there was an unmet demand: business parks. They stripped out unnecessary cost centers like ballrooms and restaurants, reducing costs and thus were able to offer comparable product to a competitor, but cheaper.
Dunkin’: liked the product, saw it as replicable with large TAM and a simple business model. Daily 'need' for some, so strong demand.
Q4:
Philip Morris: Ethical reasons
Toys-R-Us, Pier 1 Imports: Not that they were bad at the time, but I'm considering them from hindsight and why they ultimately 'failed' while others like Dunkin or even Taco Bell didn't. My conclusion is that Retail might challenging to do for multi-decades. Fashions, culture, and needs change--all of which affect inventory and the bottom line. And who could have predicted Amazon changing the way we shop!
Q5:
SSD---the dominant player in manufacturing essential niche building connectors--small, boring products that are needed to meet construction codes require them. They have pricing power. Stalwart, PE around 20 consistent with industry, par for self and lower than peers, steady EPS growth ~10-20% last 5yrs, operating margins are ~20%., buys back shares over time, equity funds most of the business, not a serial acquirer, low analyst coverage. Flags: last 3 yrs slower growth in EPS
KNSL---A high-margin, founder-led underwriter in the excess & surplus insurance niche. Fast Grower, PE ratio of 19 is lower than its 3 and 5-year averages and a litter higher than some peers. EPS growth ~30% last 5yrs. Operating margins are ~33%. Insider ownership is >5%. Healthy balance sheet (debt to equity).
Q6:
I used this while answering Q4 to get fast overviews.
Role: You are acting as a Stockbroker and you have just recommended [INSERT TICKER] to me. I am a skeptical, fundamental-focused investor with a list of questions to see if you actually know the company or if you are just reading a sales script.
1. Answer the questions below one by one as the Broker.
2. For each question, provide a detailed, data-driven response based on the most recent financial filings (10-Ks, 10-Qs) and market data.
3. If you don't have a specific data point, admit it, and then provide the closest available estimate.
Category: “How would you classify this stock? Is it a Slow Grower, a Stalwart, a Fast Grower, a Cyclical, an Asset Play, or a Turnaround?”
Growth: “How fast is it actually growing? What is the most recent growth in earnings (EPS) over the last few quarters?”
Valuation: “What is the current P/E ratio, and how does that compare to its historic levels over the last 5 to 10 years? Is it cheap or expensive relative to its own history?”
Narrative: “What is the 'story'—what makes it a good buy right now? Where is the market for their product? Are the current operations actually making a profit?”
What's the Driver: “Where is the expansion coming from? Is it new markets, or just raising prices?”
Health: “What is the debt situation? Look at the balance sheet—do they have more cash than debt, or are they loaded with liabilities?”
Financing: “How will they finance their future growth? Are they going to dilute me by selling new shares, or can they fund it through cash flow?”
Insiders: “Are insiders (CEOs/Directors/Vice Presidents/Employees) buying their own stock with their own money lately?”
Ownership: “What percentage of the shares is owned by institutions?
Question 1:
Idea Generation = Everyday observation & Scuttlebutt approach , keeping an open mind.
Research Depth = Practical , visited stores, but avoided overcomplicating analysis.
Diversification = Extremely broad
Time Horizon = Dynamic holding periods based on his 6 categories
Growth vs. Value = Growth-at-a-reasonable-price (GARP) with PEG ratio
Valuation Sensitivity = Disciplined & Avoided hype
Market Cap Focus = Flexible with Bias toward small/mid-cap
Contrarian Tilt with Trading Frequency
Question 2:
Peter Lynch grew up in modest circumstances, which gave him a practical, common-sense outlook. His job as a golf caddie exposed him early to wealthy investors and sparked his interest in finance. Formal education at Boston College and Wharton gave him tools, but he preferred simple, understandable analysis. Starting at Fidelity, he gained hands-on industry exposure that reinforced his “invest in what you know” philosophy. Managing the Magellan Fund’s rapid growth demanded flexibility and diversification, making his GARP style the perfect fit.
Question 3:
a) Marriott International..expanding its hotel chain rapidly, making it easy for investors to see . Marriott also had diversified revenue streams, including food services, which added stability. Its earnings growth matched well with reasonable valuations, fitting Lynch’s GARP style. He saw Marriott as a potential “tenbagger,” combining brand strength with long-term compounding power.
b) I was also surprised to see Shoneys had 116 quarters of earnings growth. Wow.
Question 4:
Peter Lynch often warned against “story stocks”—companies with flashy narratives but weak or nonexistent earnings. He gave examples like biotech startups, airlines, and turnarounds that sounded exciting but rarely delivered results.
Commodity plays (oil explorers, copper miners) were often sold on the narrative of “the next big strike” or “global shortage,” but Lynch disliked them because results depended on unpredictable macro factors.
Question 5:
Peter Lynch would likely find HBL Power Systems (India) attractive today because it fits his “buy what you know” and “hidden in plain sight” philosophy: everyday defense/security products like Kavach train safety, fuzes, batteries, and its Cochin Shipyard MoU show practical demand, strong growth visibility, and under researched potential with little institutional ownership. Not a household name like Tata or Reliance, but with niche leadership. Safety tech + defense + batteries = multiple growth engines. Long term visibility, reducing cyclicality
Question 6:
Act as Peter Lynch, the legendary investor known for his 'buy what you know' and GARP (Growth at a Reasonable Price) approach. Analyze a stock by answering these questions step by step:
1. Understandability – Is the company’s business simple and easy to explain in two sentences?
2. Everyday Edge – Can an average person see or use its products/services in daily life?
3. Growth Visibility – Does it have consistent earnings growth (at least 3–5 years or quarters)?
4. Valuation Check – Compare P/E ratio with earnings growth rate (PEG). Is growth reasonably priced?
5. Balance Sheet – Does the company have manageable debt and strong cash flow?
6. Second Act Potential – Beyond its main product, does it have new growth drivers?
7. Hidden Gem Factor – Is it under researched or overlooked compared to big names?
Finally, give a verdict: Would Peter Lynch likely consider this stock attractive today, and why?"