Beating the Street by Peter Lynch

we could have a major recession, and if the war was as terrible as some had expected we’d see a 33 percent drop in the price of stocks.
    Since you can’t get onto the Barron’s panel without being a successful investor, it’s safe to assume that all of us have somehow managed to develop a disciplined approach to investing that enables us to block out our own distress signals. Along with the rest of the country, I knew there was a chance that Operation Desert Storm would turn into a long and bloody conflict, but meanwhile, the stockpicker in me couldn’t help notice the amazing bargains that had resulted from the widespread selling by investors. I was no longer dealing in millions of shares as I had at Magellan, but I was adding to my holdings in my own account, and buying for the charitable trusts and public foundations whose portfolios I help manage. In October 1990, The Wall Street Journal noticed that I’d increased my personal stake in W. R. Grace and Morrison-Knudsen, two companies on whose boards I serve. I told the reporter, Georgette Jasen, that these were just “two of about ten stocks I added to… if they go lower, I’ll buy more.” I also went on record as having purchased another 2,000 shares in Magellan to add to my holdings, just as I had after I retired.
    This was the perfect scenario for the disciplined stockpicker to search his or her buy lists for likely prospects. The headlines were negative, the Dow Jones average had lost 600 points over the summer and the early fall, cabdrivers were recommending bonds, mutual-fundmanagers had 12 percent of their fund assets in cash, and at least five of my fellow panelists were predicting a severe recession.
    Of course, we now know that the war wasn’t as terrible as some had expected (unless you were an Iraqi) and what we got from the stock market instead of a 33 percent drop was a 30 percent gain in the S&P 500 average, a 25 percent gain in the Dow, and a 60 percent gain in smaller stocks, which added up to making 1991 the best year in two decades. You would have missed it had you paid the slightest attention to our celebrated prognostications.
    Moreover, if you had paid close attention to the negative tone of most of our “whither the economy” sessions over the past six years, you would have been scared out of your stocks during the strongest leg of the greatest market advance in modern history, when investors who maintained their blissful ignorance of the world coming to an end were merrily tripling or quadrupling their money. Remember this the next time you find you’re being talked out of a good investment by somebody who convinces you that Japan is going bankrupt or that a rogue meteor is hurtling toward the New York Stock Exchange.
    â€œSuspense and dread cast a heavy pall over the markets,” said Barron’s the week of our gathering for the 1991 Roundtable and just prior to the great upward spurt in the market that would carry the Dow to a record high.
THE EVEN BIGGER PICTURE
    It’s simple enough to tell yourself, “Gee, I guess I’ll ignore the bad news the next time the stock market is going down and pick up some bargains.” But since each crisis seems worse than the last, ignoring bad news is getting harder and harder to do. The best way not to be scared out of stocks is to buy them on a regular schedule, month in and month out, which is what many people are doing in the 401 (k) retirement plans and in their investment clubs, as mentioned before. It’s no surprise that they’ve done better with this money than the money they move in and out of the market as they feel more and less confident.
    The trouble with the Dr. Feelgood method of stockpicking is that people invariably feel better after the market gains 600 points and stocks are overvalued and worse after it drops 600 points and thebargains abound. If you don’t buy stocks with the discipline of adding so much