3 Brilliant Investing Tips from Peter Lynch Smart Changes: Personal Finance

(Justin Pope)

Peter Lynch was one of the greatest investors of all time; he managed the Magellan Fund at Fidelity, generated annual returns of over 29% during his 13 years at the helm, and retired at 46.

He sat down with Fidelity in a 2021 interview to offer wisdom that every investor can benefit from. Here are three key takeaways from Peter Lynch that can help you revisit and improve your investing style.

Tip 1: Know what you have

Peter Lynch talks about how cautious people are usually with their money. He says:

Citizens are cautious when buying houses, refrigerators, and cars. They’ll work hours to save a hundred dollars on round-trip airfare. They’ll throw in $5,000 or $10,000 for some hilarious idea they hear on the bus.

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Retail investors are often looking for the “next big thing,” which makes them worry that they’re missing out (FOMO), so they act hastily and irrationally. However, having a superficial understanding of the stocks you own can leave you unsure of when volatility will strike. How would you know what to do if your stock fell 10%, 20% or 50%?

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Lynch said that if you can’t explain to your child why you own a given stock in two minutes, you probably shouldn’t own that stock in the first place.

Tip 2: When to sell stocks

Volatility ultimately creates uncertainty. Peter Lynch said that of the 13 years he ran Magellan, the stock market was down nine years.

Knowing the difference between a damaged stock and a bankrupt company is the fine line between chasing a stock lower by mistake or taking advantage of a huge buying opportunity.

Deciding when to sell is exactly the same as when to buy. You have a specific story – why I bought this. This company is going from bad to semi bad to better. And the company has a lot of cash, so they don’t go bankrupt.

When business goes from half-baked to good to good, I’m probably out. You sold that growth story company when there was no room for growth. Where can they go when Taco Bell is only in Southern California? Well, they went to Central California. Then they are everywhere. I mean, it’s a 70-year story.

You have to define when a company is near maturity, which is when you exit. Or the story deteriorates. If the story is complete, you stick with it.

In other words, have an investment thesis about why you own the stock. Understand the paper inside and out so you know how to deal with volatility. Sell ​​because your investment thesis is no longer solid, not because the stock price goes up or down.

Tip 3: It’s okay to fail

People generally don’t like pain, and the fear of losing money can be a barrier to success for many investors. Know yourself; if you can’t stand the thought of stock investing failure, you should invest in index funds. However, for those willing to take the risk, the math works in your favor.

You don’t always have to be “right” to make a fortune in the stock market. Peter Lynch says:

Maybe you’re right 5 or 6 times out of 10. But if your winner goes up 4x or 10x or 20x, it makes up for those you lost 50%, 75% or 100%.

Remember, stocks can only go so far, but winners can grow to many times their original value. You can pick ten stocks and zero out nine of them. But if the stock grows to ten times its value, you’ve broken even despite all the losers. Once you realize and accept that losses are part of investing, your mindset will change for the better.

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Investors often go their own way, and this is the common link between these three investing skills. Successful investing requires the right mindset, as it is often easier to identify a good stock than to hold it through all the inevitable ups and downs.

Know the companies you invest in and focus on why you bought the stock in the first place. Embrace the volatility that comes with investing and stay calm through the ups and downs. Do these things and you’ll have a better chance of investing in success throughout your life.

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