Investment tips from billionaire Peter Lynch

Started by Maurice Shaw, Mar 16, 2023, 03:19 PM

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For those who don't know, Peter Lynch was the head of the Magellan Investment Fund. People often talk about the success of Warren Buffett, but Peter Lynch, managing the Magellan fund from 1977 to 1990, showed annual returns a head higher than Buffett's. Buffett's average annual asset growth was about 20%, while Lynch's was as much as 29.2% for thirteen years.

Tip #1: Achieve a knowledge advantage
Lynch repeatedly said that achieving success in investing isn't as hard as it may seem and one way is to try to know as much as possible about the industry or company you're investing in. Here's what he himself said on the subject:
"Your strength as an investor is not to act the way Wall Street consultants tell you to act, but to know enough about the company and the industry. Knowing the industry or the company better than professional advisors can help you act better than they do."

Tip #2: Avoid investing blindly
And really, agree that it's almost unrealistic to understand what prospects company X has if you don't know their balance sheet, don't know what their quarterly results are, what their goals are, etc. Lynch himself put it this way:
"Never invest in a firm if you don't have any information about its financial position. It is owning stock in companies with deplorable financial situations that leads to the highest losses."

Tip #3: Know exactly what you're investing in.
Lynch said the following about this:
"You need to have a clear idea of what you're investing in and for what reasons. Arguments like, 'This asset will go up in value either way,' are irrelevant in this business." "Shooting blindly will almost always cause you to miss." Lynch advises studying all available information, such as not just the accounts, but the business model and so forth. Lynch says that beginner investors often invest on impulse, and why in choosing a car or a washing machine, they are methodical in studying the information about the product. Don't treat buying stocks like a lottery ticket, Lynch says.

Tip #4: Don't try to predict market behavior
What do you mean? It's not about analyzing a company's prospects and future position, it's about trying to predict the behavior and situation of the entire stock market and other markets. In 2008, just a few months before the Great Recession (the biggest market crash since the Great Depression), there was not a single mention of an impending disaster. On the contrary, experts and analysts cheerfully talked about great opportunities for investors and the fact that at the end of the year there will be very good earnings.

Tip #5: Review your portfolio at least once every six months if you invest for the long term
The situation on the market and in the companies in which you invest changes. That's why it pays to periodically critically evaluate a company. You need to see if your initial assumptions about how the company will perform line up with what you see now. After a reassessment, you have three options: Increase investment if the company is doing better than anticipated. The second option is to leave everything as it is. The third option is to sell all or part of the assets if the company is doing worse.

Tip #6: Have enough fortitude
"Everyone has enough intellectual ability to make a profit in the stock market. But not everyone has enough emotional fortitude. If you have a predisposition to anxiety and panic, you're better off not investing." Indeed, this is often said. Panic pushes us to make impulsive decisions, which is a mortal sin in investing. Short-term price swings, even very tangible in percentage terms, will always be there, and if you succumb to them, you will suffer nothing but losses.

Tip #7: You shouldn't take advice from consultants and analysts at face value
You should be careful with expert advice, and even more so with phrases or headlines like "Don't miss your chance...". Nor should you follow much of what the authorities, including, as Lynch himself says, himself, are doing. And that's where it's simple. The most obvious reason not to do it is this: people are prone to make mistakes. Especially when it comes to the unpredictable stock market.