Wednesday, December 21, 2011

Diary: Lynch

Notes from a Motley Fool article on 21-Dec-2011, listing Peter Lynch's 25 rules of investment.


1. Investing is fun, exciting and, if you don't do any work, dangerous.

2. You can outperform the experts if you invest in companies you understand.

3. You can beat the market by ignoring the herd.

4. Find out what the company behind a share is doing.

5. Often, and for long periods, company performance can remain disconnected from its share price performance. Long term, there is correlation and the temporary disparity is the key to investment success. It pays to own successful companies, with patience.

6. You have to know what you own, and why you own it.

7. Long shots mostly miss the mark.

8. There needn't be more than five companies in a portfolio.

9. If there are no attractive companies, put your money in the bank until you find some.

10. Never invest in a company without understanding its finances, particularly the balance sheet.

11. Avoid hot shares in hot industries. Great companies in cold industries are consistent winners.

12. Wait until a company turns a profit before you invest.

13. Wait for troubled industries to show signs of recovery before investing in them. Even then, pick resilient companies and be aware that some industries never do recover.

14. It only takes a few big winners to make a lifetime of investing worthwhile.

15. The observant amateur may discover great growth companies long before the professionals.

16. Stock market declines are common: they are great opportunities to buy bargain shares.

17. Successful investing requires modest brainpower and a strong stomach.

18. Trade shares according to the companies' fundamentals and not according to wider concerns, as there's always a source of external worry.

19. Ignore economic predictions and follow what's happening in the companies you own.

20. There's always an over-looked company on the stock market, where share prices are undervaluing its prospects. All you have to do is discover it.

21. If you don't study the companies behind your investments, it's gambling.

22. Time is on your side when you own shares in great businesses.

23. If you do not have time to invest actively, buy a few share funds with differing strategies.

24. Overseas focused funds can provide access to faster-growing economies.

25. In the long run, a portfolio of well-chosen shares and/or funds will out perform most assets classes. However, a portfolio of badly chosen share investments underperforms cash under the mattress.

3 comments:

Richard Beddard said...

I love Lynch's books but I would caution that he was investing through the mother of all bull markets (though he did experience a couple of bears they were short lived in comparison). I think may have been more growth oriented than we can perhaps afford to be...

Mark Carter said...

Richard, you raise a fair point.

FWIW, Lynch's successors haven't exactly been, shall we say, "stellar". I see that the Magellan fund is down 38.5% over the decade, compared to +20.6% for the DJIA. Truly terrible..

Morningstar rates its overall return as low, and its risk as high. Nightmare.

Monevator said...

Yes, the big lesson from Lynch (who I also think is a cracking writer (presumably with his ghost) on investing is in a bull market , be a bull!