Learn to Earn: A Beginner's Guide to the Basics of Investing and Business

Many investors, including some with substantial portfolios, have only the sketchiest idea of how the stock market works. The reason, say Lynch and Rothchild, is that the basics of investing -- the fundamentals of our economic system and what they have to do with the stock market -- aren't taught in school. At a time when individuals have to make important decisions about saving for college and 401(k) retirement funds, this failure to provide a basic education in investing can have tragic consequences.

For those who know what to look for, investment opportunities are everywhere. The average high-school student is familiar with Nike, Reebok, McDonald's, the Gap, and the Body Shop. Nearly every teenager in America drinks Coke or Pepsi, but only a very few own shares in either company or even understand how to buy them. Every student studies American history, but few realize that our country was settled by European colonists financed by public companies in England and Holland -- and the basic principles behind public companies haven't changed in more than 300 years.

In Learn to Earn, Lynch and Rothchild explain in a style accessible to anyone who is high-school age or older how to read a stock table in the daily newspaper, how to understand a company annual report, and why everyone should pay attention to the stock market. They explain not only how to invest, but also how to think like an investor.

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To Peter Lynch, success in the stock market is pretty basic: if a company's earnings rise, then the stock price goes up. "This simple point--that the price of a stock is directly related to a company's earning power--is often overlooked, even by sophisticated investors," the former Fidelity Magellan manager writes in Learn to Earn, his third book on investing. "This is the starting point for the successful stock picker: find companies that grow their earnings over many years to come."

One of the best managers in the history of mutual funds, Lynch is certainly the person to help people choose the right stocks and understand the market. More so than One Up on Wall Street or Beating the Street, this Lynch book is for beginning investors of all ages. Lynch and coauthor John Rothchild are family men who are worried that teenagers aren't learning enough about the importance of American companies in improving lives and creating wealth. Lynch questions why students are taught that Hamlet was a tragic hero and Napoleon was a great general, but they don't know that Sam Walton founded Wal-Mart. In fact, Lynch's grasp of the past is one of the strengths of the book. One of the best chapters is "A Short History of Capitalism," a witty and homespun look at characters like Karl Marx, the Communist who believed capitalism was doomed, and the robber barons, the shrewd railroad magnates of the late 19th century who amassed huge fortunes by manipulating the markets.

Unlike the robber barons, beginning investors, Lynch says, should stick to the basics: get in the habit of saving and investing and putting aside a certain amount every month; develop a strong stomach because the stock market is going to fall and there's no way to anticipate it; do a little homework so you can understand the reasons to own a particular stock; and buy shares in solid companies and don't let go of them without a good reason.

This book marks Lynch's coming out as a fan of "direct investment programs," which are offered by many good companies. You purchase a couple of shares or so directly from the company and then you enroll in a plan and buy more shares each month, in some cases without paying a penny in fees and always without a broker--the way Lynch likes it. Lynch loves these plans because they're a great vehicle for investing a little bit at a time over a long period. Grab onto a company and learn about it, Lynch writes. The more you learn, the more you'll earn. --Dan Ring

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All Customer Reviews
Average Customer Review:
0 of 0 people found the following review helpful:

Better-off Reading "One Up on Wall St", 2007-11-26
Those wishing to read more about Peter Lynch's investment philosophy are better-off reading one of his two other books, particularly "One up on Wall Street," which is his best book. In this third and most recent book, Peter Lynch laments the failure of our high schools to educate America's children on investing for their financial future. No more job security. No more company pension plans. Good-bye social security. How can we teach "home economics" in school, but not the basic investment skills needed to succeed financially? The stakes could never be higher.

Besides homeownership, only stock investing for the long-term can secure our children's financial future. Lynch fervently believes in the power of stocks as a tool for both wealth-building and democratizing markets. He writes, "Being a shareholder is the greatest method ever invented to allow masses of people to participate in the growth and prosperity of a country" (19). It appears that 50 million Americans agree.

The stock market has grown to over $7 trillion dollars comprised of over 13,000 publicly-traded companies. From the United Dutch East Indian Company to Berkshire Hathaway, Lynch tells us how we got there. Those interested in the development of financial markets may also benefit from reading Peter Bernstein's book, "Capital Ideas." I also recommend that people read Robert Kiyosaki's book, "If You Want to be Rich & Happy Don't go to School," for a more detailed exposition on our public schools failings, and what can be done to rectify the situation. After laying the groundwork, Lynch moves on to discuss the "Basics of Investing" where his position can be summarized:

"Twenty years or longer is the right time frame...A market timer tries to predict the short-term zigs and zags in stock prices, hoping to get out with a quick profit. Few people can make money at this, and nobody has come up with a fool proof method" (115).

Agree or disagree with him, Lynch clearly prefers long-term investing to trading. Thankfully, not every stock takes 10-years to show a profit. Johnson & Johnson stock treated investors to a respectable "one-bagger" in just 18-months! More realistically, expect a longer lag-time for stock prices to catch-up to earnings. On average, the market price of a typical NYSE listed company can swing a total of 57% from it's 52-week high and low. For example, if Bank of America currently sells for $50 per/share, then it would not be surprising to have it trade between $36 and $64 during the year. Fortunately, this short-term noise dissipates over time. And while you can invest "play money" in internet stock market games, there is no substitute for having some "skin in the game."

Those interested in treading slowly may want to visit the National Association of Investors Corp website at www.better-investing.org. Lynch focuses his final two chapters on profiling several companies, and the "heroes" driving their success. Besides these anecdotal stories, the book concludes with two appendices on "Stock Picking Tools" and "Reading the Numbers," which appear to have been hastily put together.


0 of 0 people found the following review helpful:

Outstanding!, 2007-09-23
I studied economics in college, and thought this book was as good of a general economics book as any I've read. It's unlike the very few investing books I've ever read--the title is more descriptive, it is a learn to earn book. About why companies grow, how one can earn from their growth, historical trends affecting growth, and the actions of these on financial markets. One can go through an entire major in economics and not know much about financial markets, their contribution to business, and how people make them work. This book is a great overview of this process.


2 of 3 people found the following review helpful:

Strong Fundamental Book, 2006-08-24
This is a great book to understand the basics of investments.
Unlike a TV set where you could buy it and least care how it works as long as you know how to work on with the remote control. Stock investing is a different venture, the fundamentals of economics need to be there. One must know what does P/E mean, net cash flow, P/S ratio, forward eps estimate.
Why the penultimate year before the elections for bull market. Without fundamentals its hard to succeed in investing. Good foundation of terminlogies along with discipline and evaluating one own traits in stock investment makes one confident and a sure winner in the long run. Wall street is the same has been 100 years back there has been bulls and bear session, usually bear sessions have outpaced the bull session. But if one has picked the right stock and waits through the bear session when the bull session is around he is likely to make the maximum return. If one makes 10% return on a year to year basis one is a successful investor. All the eye catchers in newspapers and magazines with >100% return are seldom reptative. If inflation is around 3% and one makes 7% profit per year, with compounding affects anyone can become a wealthy person in the long run. Ofcourse, the real joy is to do your own research and invest and trade wisely. And with time one only excels.


3 of 4 people found the following review helpful:

Great Primer for New Investors, 2006-07-11
This is book is a great primer on the basics of investing. The language does seem geared towards a younger audience, but the information presented is useful for new and would-be investors of all ages and is very easy to read (I finished it in 3 days). For me, the book was a good brush up on different investing options. Lynch weighs the pros and cons of different investments and strategies, but in the end stresses that the most earning potential at the end of the day is in stocks. The book also includes great tips and advice on how to choose strong companies with potential for growth. This book was definitely the gentle 'shove' I needed to start investing and building a strong portfolio.

I think the book would be even better with a little updating- a bit of information or insight on the different online brokers would have been very helpful.


1 of 1 people found the following review helpful:

Best choice for Beginners!, 2006-06-23
I thoroughly enjoyed this book for three reasons:
1)It was written for teenagers, so it was easy to grasp its
concepts, plus very humerous!
2)It gave a good foundation to finance by teaching a short
history of capitalism in the US which I found to be
extremely fascinating.
3)The whole book was very informative. I learned so much
about history, how a company gets started and how it grows
and of course about investing and why we should be investing
money from our youth.
You can tell the authors have a good grasp for finance and
a genuine love of the subject and I applaud them for explaining
the topic in a down to earth way that anyone can understand.

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