Beating the Street by Peter Lynch Page A

money a month to your holdings, you’ve got to find some way to keep the faith.
    Keeping the faith and stockpicking are normally not discussed in the same paragraph, but success in the latter depends on the former. You can be the world’s greatest expert on balance sheets or p/e ratios, but without faith, you’ll tend to believe the negative headlines. You can put your assets in a good mutual fund, but without faith you’ll sell when you fear the worst, which undoubtedly will be when the prices are their lowest.
    What sort of faith am I talking about? Faith that America will survive, that people will continue to get up in the morning and put their pants on one leg at a time, and that the corporations that make the pants will turn a profit for the shareholders. Faith that as old enterprises lose momentum and disappear, exciting new ones such as Wal-Mart, Federal Express, and Apple Computer will emerge to take their place. Faith that America is a nation of hardworking and inventive people, and that even yuppies have gotten a bad rap for being lazy.
    Whenever I am confronted with doubts and despair about the current Big Picture, I try to concentrate on the Even Bigger Picture. The Even Bigger Picture is the one that’s worth knowing about, if you expect to be able to keep the faith in stocks.
    The Even Bigger Picture tells us that over the last 70 years, stocks have provided their owners with gains of 11 percent a year, on average, whereas Treasury bills, bonds, and CDs have returned less than half that amount. In spite of all the great and minor calamities that have occurred in this century—all the thousands of reasons that the world might be coming to an end—owning stocks has continued to be twice as rewarding as owning bonds. Acting on this bit of information will be far more lucrative in the long run than acting on the opinion of 200 commentators and advisory services that are predicting the coming depression.
    Moreover, in this same 70 years in which stocks have outperformed the other popular alternatives, there have been 40 scary declines of 10 percent or more in the market. Of these 40 scary declines, 13 have been for 33 percent, which puts them into the category of terrifying declines, including the Mother of All Terrifying Declines, the 1929–33 sell-off.
    I’m convinced that it’s the cultural memory of the 1929 Crashmore than any other single factor that continues to keep millions of investors away from stocks and attracts them to bonds and to money-market accounts. Sixty years later, the Crash is still scaring people out of stocks, including people in my generation who weren’t even born in 1929.
    If this is a post-Crash trauma syndrome we suffer from, it’s been very costly. All the people who’ve kept their money in bonds, money-market accounts, savings accounts or CDs to avoid being involved in another Crash have missed out on 60 years of stock-market gains and have suffered the ravages of inflation, which over time has done more damage to their wealth than another crash would have done, had they experienced one.
    Because the famous Crash was followed by the Depression, we’ve learned to associate stock-market collapses with economic collapses, and we continue to believe that the former will lead to the latter. This misguided conviction persists in the public mind, even though we had an underpublicized crash in 1972 that was almost as severe as the one in 1929 (stocks in wonderful companies such as Taco Bell declined from $15 to $1) and it didn’t lead to an economic collapse, nor did the Great Correction of 1987.
    Perhaps there will be another Big One, but since I’m not equipped to predict such matters—nor, obviously, are my learned colleagues on the Barron’s panel—what’s the sense of trying to protect myself in advance? In 39 out of the 40 stock-market corrections in modern history, I would have sold all my stocks and been