Peter Lynch is one of the most successful investor and fund managers at Fidelity Investments. His fund Magellan Fund has delivered 29.7% annual return from the year 1977 to 1990, making it the best performing mutual fund in the world. He always believed that an average investor can beat professionals in their game by using the knowledge he already has. In his books Learn to earn, one up on Wall Street and Beating the street, he explained how he made lot of money for his investors by following very simple strategies.
Being a strong believer of simple and uncomplicated investing approach, I would like to share 5 quotes of Peter Lynch that will make you a better investor.
“The real key to making money in stock market is not to get scared out of them“
Fear comes from uncertainty, and uncertainty comes from lack of knowledge. There is a general perception about markets that its a risky place. It is risky for people who lack adequate knowledge. Even the Worlds greatest investors like Warren Buffett, John Templeton had no way to predict markets future movements. All they did is used their knowledge and discipline to invest in what they understood and waited patiently for a long time.
Investing is not complicated; in fact its simple, so simple that its often overlooked as a sound investment principle. To be a successful investor, all you have to do is find good companies, invest when market is in a bad phase, and be patient for a long time, giving it chance to compound over the years, simple isnt it? But as humans, we have tendency to overcomplicate things, thanks to some market experts, they have convinced people, that investing is not everybodys cup of tea and should better be left in the hands of professionals.
The first thing that every investor should do is not to get scared of stocks. The best way to overcome fear of investing is to gain knowledge, by reading books on investing and observing people who have made fortunes in the stock market, and applying the same principles in your investments.
“Behind every stock is a business, find out what its doing“
In the short term, price of a stock is guided by demand and supply forces of the market. A stock with great news will have high demand and will see huge buying because people expect it to go up. In the long term, it is the performance of the business that determines the performance of a stock. A business that makes good profits while keeping its expenses low over a long time is a great business to invest in. Serious investors look at great businesses to invest, and stay with it for a long time.
To be a successful investor, it is not enough to buy a stock and hold it. An investor must gain knowledge about the business behind the stock, what it does and how does it make money for itself and its shareholders. Knowing this will not only help understand the business, it will also help in measuring, at least with some certainty, what possibilities the business holds for the future and where it will be after many years. In short, never overlook the business behind the stock as it is the foundation of your long term investment.
“An important key to investing is to remember that stocks are not ?lottery tickets“
Stock market is a great place to make a fortune, but some inexperienced investors look at it as a get rich quick scheme where lot of money can be made in a very short time. Easy access to internet and emergence of discount brokers has made it easy to buy and sell a stock by just clicking a button. This ease of buying and selling has given a reason to treat stocks like lottery tickets. After all why would you keep a stock for ten years, when it can be bought and sold within minutes?
The problem with this style of investing is that it makes little profit for you each time, a rise of half a percent in a stock and we are ready to book profits.
Secondly, frequent buying and selling costs a lot as for every buy and sell, you give a commission to your broker, irrespective of whether you make any money or not. This takes a big chunk of your profit away from you, in the hands of your broker, making him richer while you keep struggling to make money.
Thirdly, short term investing is not very tax friendly, if you invest for less than a year, you attract short term capital gains tax on your profits. On the other hand if you stay invested for at least one year, you dont have to pay any tax.
A sensible investor must look at stocks as a part ownership in a business and not as a lottery ticket. When you invest in a great business for long term, you are actually riding its long term success by being a part owner of it.
“Know what you own and why you own it”
Owning a stock that has been doing great for the past few years is just one side of the coin. What an investor must ensure is if the business will be able to sustain, or even improve its business in the future. ?This is what Peter Lynch calls Knowing your investments. The second part is finding reasons to own an investment. We own a stock because we expect it to do well in the future, so pull out a paper, and fill it with the reasons why you would like to hold this stock for a long term. If you have a page full of logical reasons to hold, you know you have made a good investment.
It is not enough to know what you own, a sensible and logical investor finds reasons to hold an investment, writing pros and cons of a business, and being rational while making an investment decision is the right path to successful investing.
“All the math you need in stock market, you get it fourth grade”?
Many believe, analyzing stocks requires serious number crunching and needs good knowledge of mathematics. While its true that you need to analyze a good set of financial data in order to find a great stock, it is also true that analyzing a stock is no rocket science; you need understanding of simple math to do all the calculation. A simple calculation such as addition, subtraction, multiplication, division and percentage is all you will ever need to understand a companys financial statements.
Investing in stocks is very simple, is it easy? No its not, but its simple, you dont have to be extraordinarily intelligent to be successful investor, all you need is good understanding of numbers (the basic ones), patience and discipline. The best investors in the world are not the most intelligent, but the ones with little more knowledge which they have gained from their experience, understanding and implementation of discipline needed to do what it takes to be a great investor. You could be one of them too, this is no secret, and this is nothing that cannot be done by an average person. So what are you waiting for? Go ahead, make money, make a fortune, and make your dream life a reality. GOOD LUCK![/vc_column_text][/vc_column][/vc_row]