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20 Investing Golden Rules by Peter Lynch

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 double the S&P 500 stock market index and making it the best-performing mutual fund in the world. 

Source: Wikipedia

  1. You have to know what you own, and why you own it. Never invest in a company without understanding its finances.
  2. The biggest losses in stocks come from companies with poor balance sheets. Always look at the balance sheet to see if a company is solvent.
  3. Everyone has the brainpower 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 and stock mutual funds altogether.
  4. Your investor’s edge is not something you get from Wall Street experts. It’s something you already have. You can outperform the experts if you use your edge by investing in companies or industries you already understand.
  5. Over the past 3 decades, the stock market has come to be dominated by a herd of professional investors. Contrary to popular belief, this makes it easier for the amateur investor. You beat the market by ignoring the herd.
  6. There is no correlation between success of a company’s operations and the success of its stock over a few years. In the long term, there is 100% correlation between the success of the company and the success of the stock.
  7. Long shots almost always miss the mark.
  8. Owning stock is like having children – don’t get involved with more than you can handle. There don’t have to be more than five companies in the portfolio at any one time.
  9. If you can’t find any companies that you think are attractive, put your money in the bank until you discover some.
  10. Never invest in a company without understanding its finances. The biggest losses in stocks come from companies with poor balance sheets.
  11. Avoid hot stocks in hot companies. Great companies in cold, non-growth 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 invest $1,000 in a stock, all you can lose is $1,000, but you stand to gain $10,000 or even $50,000 over the time you’re patient. You need to find a few good stocks to make a lifetime of investing worthwhile.
  14. In every industry and every region, the observant amateur can find great growth companies long before the professionals have discovered them.
  15. A stock-market decline is as routine as a January blizzard in Colorado. 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.
  16. There is always something to worry about. Avoid weekend thinking and ignore the latest dire predictions of newscasters. Sell a stock because the company’s fundamentals deteriorate, not because the sky is falling.
  17. Nobody can predict the 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.
  18. If you study 10 companies, you’ll find one for which the story is better than expected. If you study 50, you’ll find five. There are always pleasant surprises to be found in the stock market.
  19. If you don’t study any companies you have the same chance of success buying stocks as you do in a poker game if you bet without looking at your cards.
  20. Time is on your side when you own shares of superior companies.

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