Investing in stocks is fashionable, just look at the number of Youtube channels, Twitter accounts and even TikTok with investment tips, to this is added the countless brokers out there. Unfortunately there are many who leave the market with the lesson well learned but without a euro, let’s look at 10 tips from one of the best investors of all time, Peter Lynch
1. “If you are prepared to invest in a company, you have to be able to explain why in a way that a schoolboy can understand you, and quickly enough so that he doesn’t get bored.”
Before you buy a company’s stock, you have to understand it fully. This simple test will help you see if you really have a valid reason to invest, other than “because it’s going up”.
2. Behind every stock is a company. Find out what it’s doing.”
Most investors tend to forget that the stock they are buying or selling is of a particular company. Remember that the underlying value of a company will determine the price of the stock in the end, so educate yourself and understand the true value of what you are buying. The rule is clear, behind any investment there is something and you have to know what it is.
3. “Having shares is like having children, don’t have more than you can manage”.
In short, don’t bite off more than you can chew. Make sure you focus on a few companies that you can report on and monitor frequently. Investing isn’t about how many types of stocks are in your portfolio, it’s about how well your portfolio grows. The same goes for your savings.
4. “Stocks are not lottery tickets. There is a company attached to every stock.”
Similar to quote #2, it’s so easy to buy stocks these days, just make a couple of clicks and voila. You’ve bought some shares. Now what? What have you bought? Why? How?
5. “In this business, if you’re good, you’re right six times out of ten. You’re never going to be right nine out of ten.”
Investing is a numbers game. You cannot and should not expect a perfect game; if you can’t take a loss, you are doomed from the start. Success in investing and in life depends on knowing how to deal with failure, cut your losses early on, learn from them and move on.
6. “The person who turns over the most rocks wins the game. That has always been my philosophy.”
Investing is all about the thoroughness of your research. The more you understand the companies you invest in, the better chance you have of success.
7. “During the gold rush, most of the would-be miners lost money, but the people who sold them shovels, tents and jeans (Levi Strauss) made a good profit.”
This is a great investment principle that most people overlook. When you identify a thriving sector or stock, don’t forget about the companies that complement that sector. For example, when Apple Inc. succeeded with the iPhone, many other companies that supplied them with technology and raw materials also made a lot of money.
8. “All the math you need in the stock market you learned in elementary school.”
You don’t need to be a genius to invest, if you were, most university finance professors would be billionaires (which they are not). Peter Lynch’s favorite valuation models are very simple to calculate. You only need basic math to get all the important ratios you need. What you really need to invest is the effort and discipline to inform yourself.
9. “The born investor is a myth”.
When it comes to investing, hard work and discipline remain the determining factor for success. Investing in the stock market is a skill that can and should be learned.
10. “The simpler it is, the more I like it.”
A simple but effective investment plan will always be better than a complicated one because the simpler one has less margin for error. Also, the simpler a company’s business model is, the easier it is to understand and evaluate it, and that will help you make better investment decisions.