The investment philosophy of the gurus

Views 3303 Nov 29, 2023

25 Golden Investment rules of Peter Lynch

Key points

● investment is fun and exciting, but it's dangerous if you don't do any work.

● must not invest in a company without knowing the company's financial situation.

● everyone has the brainpower to make money by investing in the stock market.

Peter Lynch, Peter Lynch, born on January 19, 1944, is an outstanding stock investor and fund manager.

He was vice chairman of Fidelity, the world's largest investment fund, and a board member of the trustee of Fidelity.

During his 13 years as a portfolio manager (1977-1990), Peter Lynch earned a reputation for best performance, increasing assets under management from $18 million to $14 billion (as of 1990).

In his two books, Peter Lynch explains how he analyzes, "people on Wall Street" and "beating Wall Street".

If you read these two books carefully, you will find that Peter Lynch's approach is straightforward, and most beginners can follow in his footsteps to invest.

Peter Lynch's "invest in what you know" strategy makes him a household name among investors large and small.

Here are 25 golden rules for investing in Peter Lynch's book.

First, investment is interesting and exciting, but it can be dangerous if you don't study the fundamentals.

Second, as an amateur investor, your advantage is not to get so-called professional investment advice from Wall Street investment experts. Your advantage lies in your own unique knowledge and experience. If you make full use of your unique strengths to invest in companies and industries that you fully understand, then you are sure to beat those investment experts.

Third, over the past 30 years, the stock market has been dominated by a group of professional institutional investors, but contrary to popular belief, I think this has made it easier for amateur investors to achieve better investment performance. Amateur investors can ignore this group of professional institutional investors and still beat the market.

Fourth, there is actually a company behind every stock, and you have to figure out how the company operates.

Fifth, it often happens that in the short term, for example, for months or even years, a company's performance has nothing to do with its stock price performance, but in the long run, a company's performance must be completely related to its stock price performance. Figuring out the difference between the correlation between short-term and long-term performance and stock price performance is the key to making money by investing. At the same time, this difference also shows that patient holding will pay off, and the investment can be successful only if you choose the stocks of successful companies.

Sixth, you need to figure out the fundamentals of the company you own, and you need to figure out what the reason for holding the stock is. It is true that children will grow up eventually, but stocks will not rise eventually.

Seventh, thinking that once you win, you will make a lot of money, so you will often lose a lot of money if you make a big bet.

Eighth, think of stocks as your children, but you can't raise too many children and invest in stocks too much, so you can't take care of them at all. An amateur investor, even with all the spare time available, can only study and track 8 stocks at most, and can only find opportunities to buy and sell if conditions permit. Therefore, I advise amateur investors not to hold more than five stocks at any time.

Ninth, if you can't find a listed company stock worth investing in, stay away from the stock market and put your money in the bank until you find a stock worth investing in.

Tenth, never invest in stocks of a company that you don't know about its financial situation. It is those rotten stocks with poor balance sheets that have made investors lose a lot. Before buying stocks, be sure to check the company's balance sheet to see if the company is solvent enough and there is no risk of bankruptcy.

Eleventh, avoid hot stocks in hot industries. Outstanding company stocks in unpopular industries and non-growing industries tend to become the most profitable stocks.

Twelfth, for small company stocks, you'd better hide and wait patiently until it is not too late to consider investing when these small companies start to make a profit.

Thirteen, if you plan to invest in an industry that is in trouble, be sure to invest in stocks of companies that can pull through and wait for signs of recovery. But industries such as horse-drawn whips and electronic tubes have no hope of recovery.

Fourteenth, if you invest $1000 in a stock, even if you lose all of it, you will only lose $1000 at most, but if you hold it patiently, you may earn $1000 or even $50000. Amateur investors can concentrate on the stocks of a few excellent companies, but fund managers have to diversify their investments according to the regulations. If amateur investors hold too many shares, they will lose their advantage over professional institutional investors. As long as you find a few bulls and concentrate on investment, amateur investors will spend a lifetime of time and energy on investment far better value for money.

Fifteenth, in any industry, anywhere, amateur investors who usually watch will find outstanding high-growth companies, and they will find that they are much earlier than those professional investors.

Sixteenth, stock prices often fall sharply in the stock market, just like snowstorms in the northeast in the depths of winter. If you make full preparations in advance, there will be no damage at all. When the stock market falls, those unprepared investors will be frightened, hurriedly cut meat at low prices and flee the stock market, and many stocks will become very cheap, which is an excellent opportunity for investors who prepare in advance to buy at a low price.

Seventeenth, everyone has the knowledge needed to invest in stocks to make money, but not everyone has the courage to invest in stocks to make a lot of money. If you are easily influenced by others in the panic of a sharp fall in the stock market and are so scared that you sell all your stocks, you'd better not invest in stocks or equity funds.

Eighteenth, there is always something to worry about. Don't worry about the alarmist analytical comments in the weekend newspapers, ignore the pessimistic predictions in recent news reports, and don't be so scared that the stock market will crash. Don't worry, the sky won't fall. Unless the company's fundamentals deteriorate, never panic and sell your good company shares.

On the 19th, no one can predict the future changes in interest rates, macroeconomic trends and stock market trends in advance. Ignore any future interest rate, macroeconomic and stock market forecasts and focus on what is happening to the company you are investing in.

Twentieth, if you study 10 companies, you will find a good company that is much higher than expected. If you study 50 companies, you will find five good companies that are much higher than expected. There are always surprising surprises in the stock market, that is, good company stocks that perform well but are ignored by professional institutional investors.

Twenty-one, buy stocks without studying the fundamentals of the company, just like playing cards without looking at cards, the opportunity to make money by investment is very small.

Twenty-second, when you own shares in a good company, time will be on your side; the longer you hold it, the greater your chances of making money. Patiently holding good company stocks will eventually yield good returns, even if you miss the big rise in the first five years of excellent companies like Walmart Inc, there will still be good returns for long-term holdings in the next five years. But if you hold stock options, time will be on the opposite side of you, and the longer you hold it, the less likely you are to make money.

Twenty-third, if you have the courage to invest in stocks, but do not have the time or interest to do homework to study the fundamentals, then your best choice is to invest in equity funds. You should diversify your investments into different stock funds. The investment style of fund managers can be divided into growth type, value type, small-cap stocks, large-cap stocks and so on. You should invest in several different styles of stock investment funds. Note: investing in six stock funds with the same investment style is not a diversification. Investors who switch between different funds will pay a huge price and have to pay a high capital gains tax. If one or more of the funds you invest in perform well, don't abandon them casually, but hold them firmly for a long time.

Twenty-fourth, over the past decade, the average return on investment in the US stock market has only ranked eighth among global stock markets, so you can buy funds that invest in overseas stock markets with good performance. in order to share the high growth of stock markets in other countries outside the United States.

Twenty-five, in the long run, investing in a portfolio of carefully selected stocks or equity funds will certainly perform much better than a portfolio of bonds or bond funds, but it is safer to invest in a portfolio of randomly selected stocks than to put money under the bed.

Disclaimer: The above content does not constitute any act of financial product marketing, investment offer, or financial advice. Before making any investment decision, investors should consider the risk factors related to investment products based on their own circumstances and consult professional investment advisors where necessary.

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