With the uproar in the world. Financial instability is at the center of many minds. Pandemic made many lose their life savings to food and medical bills. It is high time to understand that modern times require modern ways of investment. At the heart of this lies the stock market.
“Stocks are still the best of all the poor alternatives in an era of inflation.”
In the realm of stocks, it is necessary to know where, when, why, what, and how to begin. At the initial stages, we often tend to get affected by what others see and say, though it is not a wise choice to make when it comes to stocks. Here is a beginner’s guide in the realm of stocks from the lifelong experience of a great investor of all time Peter Lynch.
- Know the story before the moral
The biggest mistake you may do, of investing in a stock purchased by your friend, which gained momentum in recent times. Without any prior research or inquiry. That’s where you slip off.
“Never invest in any company before you’ve done the homework on the company’s earnings prospects, financial condition, competitive position, plans for expansion, and so forth.” — Peter Lynch.
Young investors need to memorize this mantra of the sage. Without knowing the whole story jumping to conclusions brings no results. It is necessary to visualize the big picture of any company before stepping into its terrain.
- The Doors
We can’t deny that when it is high time, we all get tempted to invest in stocks. But it is necessary to know when to enter and when to leave while making an investment and getting the desired returns.
“When the business goes from semi-crummy to better to good, I’m probably out. You sell the company that was the growth story when there is no room to grow.” — Peter Lynch.
The great investor suggests entering the market when there is a scope of growth. If the company has already saturated, the returns might be high at the time of purchase but they will eventually show steadiness.
Lynch has also categorized companies as Slow-Growers, Stalwarts, Fast-Growers, Cyclicals, Turnarounds, and Asset opportunities. He suggests categorizing a company by “story” type. So let’s categorize these 6 in three columns;
You might wonder why Asset opportunity is in two categories. The reason has been finding these hidden assets requires a real working knowledge of the company that owns the assets, and Lynch points out that within this category, the “local” edge — your knowledge and experience. So if you plan to invest in a company whose knowledge is completely known to you, it is a big thumbs up!
- Be Patient
“Time is on your side when you own shares of superior companies.” — Peter Lynch.
Most of our life problems get solved when we keep patience. Especially when we are dealing in stocks, it is essential to not let your patients weaver off. Stocks may start to intimate you. But if you start getting influenced by the market you might end up losing instead of earning the returns.
- Cover-up
“If you are great in this business, you are right six times out of ten. But the times you are right should overcome your mistakes.” — Peter Lynch.
Lynch put resources into different stocks in the course of his life. A portion of his speculations did unremarkably, some did affirm, and a couple of them conveyed shocking returns. What assisted him with giving excellent returns all through his performance is clutching his top entertainers in contrast to hoping to benefit from them after short rallies.
The lesson here is to be patient with your top-performing investments. It might sound in contrast to the idea of booking returns. But miss the chance to earn exponential returns with the power of compounding and reaching their financial goals.
- Know where to restraint
“Stocks aren’t lottery tickets. Behind every stock is a company. If the company does well, over time the stocks do well.” — Peter Lynch.
It is important to know to not just go on buying stocks. As Lynch says, you have to keep a check on how the company is performing. Doing proper research and the track of company operations and mergers have a major effect on the stocks of the company. Buy only as much you can handle. Otherwise, you might end up getting into trouble.
- Not a cut-out for stock
“You’ve got to look in the mirror every day and say: What am I going to do if the market goes down 10%? What do I do if it goes down 20%? Am I going to sell? Am I going to get out? If that is your answer, you should consider reducing your stock holdings today.” — Peter Lynch.
Lynch suggests if you are looking for immediate returns and in need of money, then stocks are not for you. Most people do well because they just hang in there. Suggesting, in that case, you should invest money in more secure modes, like Mutual funds, etc…
- The Edge
“If you’re prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth-grader could understand, and quickly enough so the fifth grader won’t get bored.” — Peter Lynch.
Lynch has constantly emphasized one’s knowledge. If you plan to invest in any company, it’s really necessary to get a complete understanding of it. He also suggests investing in small local firms, which you come across daily. Furthermore, a few of his great investments were while visiting a mall. Peter states that, if you have faith in the growth of certain industries and well-through their working, it’s a big thumbs up!
By applying his lessons and our observations we can learn more about investing while interacting with our world, making the process of investing both more enjoyable and profitable.
I would leave you with some red flags which you should keep in mind while investing in stocks.
- Hot stocks in hot industries.
- Companies (particularly, small firms) with big plans that have not yet been proven.
- Profitable companies engaged in diversifying acquisitions. Lynch terms these “diversifications.”
- Companies in which one customer accounts for 25% to 50% of their sales
Remember,
“Successful investing starts with courage.”
