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25 Golden Rules by Peter Lynch

25 Golden Rules by Peter Lynch

Haitham Sadek 0 Comments

Over 10 years ago, I read all Peter Lynch’s books and found them very insightful, practical and suitable for the stock market beginners. Peter Lynch is an American investor, mutual fund manager, and philanthropist. As the manager of the Magellan Fund at Fidelity Investments between 1977 and 1990, Lynch averaged a 29.2% annual return, consistently more than doubling the S&P 500 market index and making it the best performing mutual fund in the world. These 25 Golden Rules for stock market investment by Peter Lynch played an important role in building my stock market knowledge and forming my stock investments strategies. I encourage you to not only read them but more importantly to implement them. Happy reading!

  1. Investing is fun, exciting and dangerous if you don’t do any work 
  2. You can outperform the experts if you use your edge by investing in companies or industries you already understand 
  3. The stock market has come to be dominated by a herd of professional investors. You can beat the market by ignoring the herd 
  4. Behind every stock is a company. Find out what it’s doing 
  5. Often, there is no correlation between the success of a company’s operations and the success of its stock over a few months or even a few years. In the long term, there is a 100% correlation. This disparity is the key to making money; it pays to be patient, and own successful companies. 
  6. You have to know what you own, and why you own it. 
  7. Long shots almost always miss the mark.
  8. Owning stocks is like having children- don’t get involved with more than you can handle. The part time investors probably have time to follow 8-12 companies.
  9. If you can’t find any companies that you thing are attractive, put your money in the bank until you discover some.
  10. Never invest in a company without understanding its finances. Always look to the balance sheet to see if a company is solvent before you risk your money on it.
  11. Avoid hot stocks in hot industries. Great companies in cold, nongrowth industries are consistent big winners 
  12. With small companies, you’re better off to wait until they turn a profit before you invest 
  13. If you’re thinking about investing in a troubled industry, buy the companies with staying power. Also, wait for the industry to show signs of revival. 
  14. If you invest 1000$ in a stock, all you can lose is 1000$, but you stand to gain 10,000 or even 50,000 over time if you are patient. 
  15. In every industry and every region, the observant amateur can find great growth companies long before the professionals have discovered them
  16. A stock market decline is a routine. If you’re prepared, it can’t hurt you. A decline is a great opportunity to pick up the bargains left behind by investors who are fleeing the storm in panic 
  17. Everyone has the brain power to make money in stocks. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks. 
  18. There is always something to worry about. Avoid week-end thinking and ignore the latest dire predictions of the newscasters. Sell a stock because the company’s fundamentals deteriorate, not because the sky is falling.
  19. Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested 
  20. If you study 10 companies, you’ll find 1 for which the story is better than expected. If you study 50, you’ll find 5. There are always pleasant surprises to be found in the stock market- companies whose achievements are being overlooked on wall street. 
  21. If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
  22. Time is on your side when you own shares of superior companies. Time is against you when you own options.
  23. If you have the stomach for stocks, but neither the time nor the inclination to do the home work, invest in equity funds.
  24. You can take advantage of the faster-growing economies by investing some portion of your assets in an emerging markets funds with good record.
  25. In the long run, a portfolio of well-chosen stocks or funds will always outperform a portfolio of bonds or money-market account. In the long run, a portfolio of poorly chosen stocks won’t outperform the money left under the mattress. 

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