Peter Lynch: these 12 statements are stupid and dangerous

About why the stock price goes up and down? Some people say that the makers are shipping, some say that the market has good news, and others say that the Guo Jia team is operating. There are all kinds of popular explanations between professional and amateur investors, but Mr Lynch thinks these explanations are ridiculous.

The market is the result of the joint action of tens of millions and hundreds of millions of trading bodies, and everyone has different ideas, so it is difficult to say which party played a key role. In this regard, our view is that investigating the reasons for the rise and fall of stock prices is not only absurd and boring, but also a waste of time and life.

Graham likens price formation to Mr. Market, while we say that Mr. Market is a mental patient who is insane. Price changes all the time do not have much practical significance. Let's just make good use of the price to find trading opportunities.

However, if the perception of the stock price is wrong, it may have unimaginable consequences for investment.

In Chapter 18 of Peter Lynch's successful Investment, Lynch lists 12 statements about stock prices that are stupid and dangerous:

1. The share price has fallen so much that it is impossible to fall any more.

2.You always know when a stock has hit bottom.

These two statements seem to make a lot of sense. Lynch took Polaroid as an example to explain to us that when Polaroid's sales and profits fell sharply, many investors did not notice that the stock price was actually seriously overvalued. On the contrary, they kept comforting themselves with some self-deceptive words: "the stock price has fallen so much, it is impossible to fall again", or "the stock of a good company will always rise back." "you must be patient in investing in the stock market" and "it is foolish to sell a good stock because of panic".

However, it was not long before the stock fell from $143.5 a share to $14.125 a share in less than a year, when it was really "impossible to fall any more". The price paid by investors who believe in the wrong theory of "impossible to fall again" is too high.

At the time, Lynch was an inexperienced analyst desperate for success at Fidelity. At that time, the share price of Caesar Industries fell from $25 to $13. At $11 a share, Fidelity bought 5 million shares on Lynch's recommendation, one of the largest block trades in the history of the American stock exchange.

I am confident that this stock will never fall below $10. When Caesar's share price fell to $8, I called my mother and asked her to buy the stock right away, because I thought it would never fall below $7.50. But then Caesar's share price fell from $7 to $6 and then to $4, thanks to my mother not following my advice.

For the Big White Horse fourth Ring Medicine, whose performance is declining and the moat is constantly collapsing, when it fell to 1.4 yuan in 2018, a friend suggested that it could not fall again. What is the truth? Just look at the picture below. You thought the price had fallen to the floor, but you didn't expect that there was a basement under the floor and eighteen layers of hell under the basement.

The stock market is bottomless, and historical PB can be measured for cyclical companies with downward cycles, but for companies with declining performance and declining core competitiveness, the bottom line of stock price discounts is really hard to judge.

Buying from the bottom has the feeling of taking chestnuts in the fire.If you want to buy from the bottom of a rapidly falling stock, not only can't you copy it to the end, but you may even lose all your background.Because you are mistakenly thinking that it is the bottom price, but it is not the bottom at all, it is far from the real bottom, it is like trying to grab a knife that is falling rapidly, not only can't hold it, but it will hurt your hand and cause severe pain.

Buffett's advice is that when the knife falls to the ground, plunges into the ground, wiggles for a while and then stops moving, it's not too late to grab the knife.

In a plummeting market, if you are interested in a specific company and know better, you need to think:

• Was the company killed by mistake?

• Are the fundamentals of the company still positive?

• Does the company's performance have the opportunity to achieve breakthroughs or retaliatory growth in the future?

• Has the risk of the market been digested?

Whether it's a troubled reverse transformation company or a good company that has been killed by mistake, if you are interested in them, you should find a stronger reason to buy, not just because the stock has fallen so much that it looks like it might rebound.

Stock prices usually oscillate before they rise again. Generally speaking, the period of oscillatory consolidation can be as long as 2-3 years, sometimes even longer. In such a process, the market can fully absorb the pessimistic factors, and investors can have enough time to investigate and analyze.

Of course, for the Thunderbolt Black Swan incident, such an opportunity can be fleeting, and if you want to participate, you have to make sure you know enough about the fundamentals and prospects of the company.

I bought Longji shares after the "531" New deal in 2018. Because of this new policy, the photovoltaic industry is almost at a 70% discount. After discussing with several friends in the industry and confirming that Longji is the direction of the future, I have the idea of making a bottom. After the first Jiancang, the stock price was still falling, and soon the stock price fluctuated around 10 yuan. I also accepted Ba Lao's suggestion to adjust the strategy of "do not take the falling knife." every time the stock price rose slightly and began to increase the position, starting from 10 yuan, 12 or 13 yuan was entrusted to buy.

In the incident of "NIO Inc. auto spontaneous combustion recall" in 2019, the stock price of Ningde era fell. After technical consultation, I found that Ningde was not the main undertaker of the accident responsibility. Based on the recognition of finance, business fundamentals, technical strength and team quality, our strategy is: the more you fall, the more you buy.

3. The stock price is already so high, how can it rise again?

This is true, but if you are dealing with companies whose performance continues to hit new highs, it is very wrong.

After Subaru had risen 20-fold, Lynch looked at the fundamentals of the company and found that Subaru's share price was still very cheap relative to its real value, so he bought the stock, which later gave him a sevenfold return on his investment.

"if I had asked myself, 'how could this stock go up again,' I wouldn't be able to buy a stock that has risen 20-fold at this time," Lynch said.

The key is that there is no artificial limit on how much a stock can rise.If a company's development prospects are good, the investment income will continue to grow, and the fundamentals will not change. It is too bad to give up owning the company's stock just because "the stock price cannot rise any more."

Investment experts who advise clients to sell shares automatically when their investments double should be humiliated and ashamed, because if investors follow their advice, they will never get a chance to catch a bull stock that has risen 10 times.

At the book club two days ago, a friend asked me when to sell two stocks that had been hitting new highs.In the face of the market where high-quality assets are scarce and money overissued, the water rises and the ship rises naturally.The more experienced jianghu section Ziyun:Only companies that keep making new highs will continue to make new highs.With sunshine, trees will grow naturally. But a tree is a tree, and it never grows to the sky.

My advice is that it is not recommended to chase high, there are three situations of withdrawal in the future: A. Found cheaper and better companies to buy; B. The company's medium-and long-term performance can not support the current stock price or fundamentals have deteriorated; C. The market as a whole is overheated.

Peter Lynch's advice to us is more pertinent:"as long as the company continues to maintain good development prospects, I will firmly continue to hold this stock, hoping that it will eventually bring me a pleasant surprise. "On the one hand, this kind of surprise is the success of the company itself, on the other hand, it is the high return brought by the rise of the company's stock.

4. The share price is only $3. How much can I lose?

How many times have you heard people say that? The Xiaobai children's shoes who just entered the market are always saying that the company's share price of more than 100 is too expensive. I want to buy stocks under 10 yuan. Anyone who knows a little bit about fundamentals and value investment knows that the price has nothing to do with the valuation of the company.

When the share price of a stock falls to 00:00, no matter whether it is 50 yuan or 1 yuan, you will lose all your money.

5. The stock price will rise back eventually.

6. It's always darkest before dawn.

People have a psychological tendency to think that now that things have become so bad, they can't get any worse in the future. There are seemingly incomprehensible investors will think: if not, the stock price will eventually rise back.

After Leeco hit the streets, many people still dreamed that management could restructure assets or introduce strategic investors, but these were all wishful thinking. Letv finally delisted from the market and left quietly with the blood and tears of hundreds of thousands of shareholders.

How many people once fell in love with speculating in ST, but now the registration system is in place, and more and more companies are delisting. If you are still indulging in the dream that "the stock price will eventually rise back," you may wake up to find yourself in hell.

The sky is always darkest before dawn, but sometimes it is always darkest before it gets dark at last.

7. I won't sell until the stock price rebounds to $10.

Here, I would like to say: some people live to release the trap.

The moment you say, "I won't sell until the stock rebounds to $10," you may be doomed to a tragic outcome: the stock fluctuates up and down below $9.75 for a few years, then plummets to $4, eventually plummeting to a face value of just $1.

The whole painful process can take as long as a decade, during which you have to endure the psychological torture of a stock you don't like falling all the way. and all this is because a voice in your heart tells yourself: I won't sell it until the stock rebounds to $10.

In the moment of changing positions or needing money, people always like to sell profitable companies, leaving green ones at a loss, and meditate: I will sell when I get my money back. In response, Lynch made the following comments: what you are doing is simply "cutting flowers and leaving weeds."

According to the previous statement,Often strong companies will develop more strongly in the later stage, while junk companies will continue to be rubbish.

When a company's share price falls or the agency downgrades the company, you have to consider whether you made a hasty decision and whether you were wrong.If it's wrong, my advice is: sell right away, don't stop for a moment, and it doesn't feel good to slide from the floor to hell. Otherwise, continue to hold.

Lynch's advice to us is: unless I have enough confidence in the company that I am willing to buy more shares when the share price falls, I should sell the shares of the company immediately.

8. What do I have to worry about? conservative stocks don't fluctuate too much.

Two generations of conservative investors once firmly believed that there was nothing wrong with investing in utility stocks. After buying these utility stocks that you don't have to worry about, all you have to do is lock the stock in a safe and wait for the company to pay a dividend.

Even utility stocks like United Edison, which used to perform very well, have suddenly lost 80% of their market value because of the nuclear accident and the return on investment base.

When it comes to utility stocks, investors can make or lose a lot, depending on whether you are lucky or cautious when choosing utility stocks.

I have been concerned about environmental protection water and sewage treatment companies for some time, and I think that they have the characteristics of public utility companies. But after following for a year or two, I decided to give up because there was something wrong with the business model of the industry and the cash flow was too poor. If you do not participate in agent construction, there is no entrance to future development, participation will lose its cash flow, and all it earns on its books are virtual franchise assets.

(although Yunnan Water has since turned to the industrial solid waste business with stronger cash flow, the pressure of acquisitions has also exhausted the company. )

I have said that because end products cannot be priced in the market and operating income needs government subsidies, many types of public utility companies are pseudo-value stocks and pseudo-growth stocks, and investors should be particularly careful.

At the same time, the development of the company is dynamic, the prospect of the company is changing, and there is no stock that you can hold all the time.

9. The waiting time is too long to rise.

Investors must have come across this situation: you have been waiting for a company's share price to rise, but you have waited for a long time, but you have not gone up for a long time, so you really get impatient and give up the stock, but the day after you sell the stock, the rise that you have always dreamed of happens. I call it "sell or go up, sell or go up".

Too many investors are eager to "act" rather than "wait".

Shortly after the Ningde era went public, the company's share price began to lie sideways, a situation that lasted from August 2018 to November 2019. In the middle also encountered NIO Inc. car recall incident. Although the company's performance has maintained a growth rate of more than 40%, and the cash flow indicators and ROE are super beautiful, the stock price has not risen. To the Spring Festival in 2020, the market suddenly warm wind blowing, the stock price has soared, so far the stock price has risen 300%.

However, if investors can continue to track the company's business development and have a long-term vision, I believe they will not sell this bull stock so prematurely.

We are also used to holding a stock for a long time, especially when its performance rises rapidly and the stock price fluctuates sideways for a long time. This gives us the opportunity to buy more at a low price, and a rapid rise can be confusing. BecauseWe believe that value will be late but not absent, and the dog of stock price will return to its owner sooner or later.

Lynch especially likes the "straight-line ECG" company. The stock of EKG, which he once followed, has not fluctuated for several years. He calls this straight-line stock price chart "the electrocardiogram of a stone." he said, "whenever I see the stock price trend of a stock that attracts me, it looks like the ECG of a stone." I would take it as a strong hint that the next surge is coming.

It does take extraordinary patience to own a company that you like very much and no one else is interested in.Maybe the stock price remains motionless and you start to wonder if someone else is right and I am wrong, but as long as the fundamentals of the company show that the company has good prospects, then investors' patience will eventually pay off.My own years of investment experience has also proved this point.

10. If I didn't catch this bull stock, I made a hundred million less.

11. I have to catch the next big bull like this.

People often regret that they did not buy stocks and real estate that appreciated a lot, and missed the opportunity to make a lot of money.

In investing in the stock market, it is not a useful attitude to think that the money earned by others in the stock market is the money we have lost. This attitude can only make people completely crazy. The more stocks you know, the more bulls you will find that you have missed, and you will soon blame yourself for losing billions or even trillions of dollars.

Sometimes as soon as you sell all your stocks, the stock market goes up 100 points, and you wake up in the middle of the night and complain bitterly about the huge losses you have suffered.

The worst thing about this idea is that it causes people to blindly buy stocks they shouldn't have bought in pursuit of the highest returns, just to avoid losing a lot of money by missing out on bulls as they did in the past.

In the recent exchange of value investment between China and Brazil, a big shot once said bluntly:If you don't hold on to a stock in the past, it will be very difficult for you to make money from it in the future.

Indeed, the essence of investment is cognitive realization.What you didn't find and miss in the past, what you bought but sold prematurely, is all for the same reason: you don't know enough about the stock.Otherwise, how could you miss it? how could you not hold it?

I often joke that don't envy other people's beautiful girlfriends. Li Lu also mentioned the disadvantages of investor communication in his sharing. Indeed, everyone has their own unique circle of ability and cognitive scope. For good companies that others have made a lot of money, first of all, most of the prices are very high, which is no longer suitable for starting. Moreover, if the price drop opportunity comes in the future, but because you are not familiar with it, you will continue to miss it because you are not familiar with it, do not understand it, and are not sure.

My advice isRather than envy the fish in Linyuan, it is better to retreat and form a net.Study honestly and in a down-to-earth manner, look more at the industrial chain and market end of the company, and expand your own ability circle. only in this way can we avoid missing out on the Daniel stocks around you and within the capacity circle.

Let's take another look at the example of Lynch. 'If you miss out on Toys R us, a remarkable company whose share price continues to rise, you buy the stock of Green man Brothers, which is called the next American Toys R us, and this is actually a very ordinary company, and its stock price continues to fall instead of rising, then your investment behavior is even more wrong,'he said.

In fact, the first mistake you make is to miss Toys R us, but missing Daniel shares won't make you lose any money (remember, not buying Toys R us stock won't cost you a penny). And the next mistake you make to make up for the first mistake will cost you a lot of money. Investors in this case investors missed the first-class excellent company but also followed the trend to buy a general company, the root cause of its loss is their own awareness is not in place, internal skills are not in place.

twelve。 The stock price went up, so I chose the right stock.

This sentence is regarded by Lynch as the stupidest fallacy: the stock price rose 20% a week after the purchase, proving that he chose a bull stock; on the contrary, if it fell, it proved that his choice was rubbish.

The root of this fallacy is to confuse the company's stock price with the company's development prospects and fundamentals. The rise and fall in the short term is the result of the crazy action of tens of millions of investors, which can not explain a person's investment ability. In other words, it is ridiculous to judge an investor's ability by the result of a dog's behavior.

In a bull market or pro-cycle, the stock price rises, and the ducks in the pond rise as the water level rises to eat the leaves and fruits hanging from the surface of the water. The excited ducks squawk, thinking that they have grown taller and get carried away.

This illusory illusion makes many investors fall into blind overconfidence. He will think that his strategy and method is right, so he will keep increasing the size, or even margin trading.

Because of this illusion that is divorced from fundamental research and rational judgment, when the market wind adjusts and the tide recedes, it is often the duck with the loudest cry and the highest self-confidence that cries the worst.

And that's why.Graham warned investors that the bull market is the main reason for losses for ordinary investors.Retail investors are at the bottom of a bear market, and at the beginning of a bull market, they tend to buy tentatively with a small amount of capital; when the market begins to rise, they gradually increase their positions, and when the market reaches the top, retail investors are the most emotional and the heaviest. The state of mind has also changed from initial fear to greed. However, once the big adjustment comes after the peak, it will cause huge losses. Not only will the profits of the previous period be depleted, but also will often result in a greater loss of principal. "profits and losses are of the same origin. If investors' awareness is not in place, the money earned by luck will eventually lose money back on the basis of strength.