EP30 (Part2) Peter Lynch Investing Golden Rules



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We continue to talk about the investing rules by Peter Lynch and this episode covers the following 8 rules.

  1. Never invest in a company without understanding its finances. 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 before you risk your money on it.
  2. Avoid hot stocks in hot industries. Great companies in cold, no growth industries are consistent big winners.
  3. With small companies, your better off to wait until they turn a profit before you invest.
  4. 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. Buggy whips and radio tubes were troubled industries that never came back.
  5. 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 time if you’re patient. The average person can concentrate on a few good companies, while the fund manager is forced to diversify. By owning too many stocks, you lose this advantage of concentration. It only takes a handful of big winners to make a lifetime of investing worthwhile.
  6. In every industry and every region of the country, the observant amateur can find great growth companies long before the professionals have discovered them.
  7. 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.
  8. 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.

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