When we talk about geniuses in the investment world, Peter Lynch comes second to none. If you’re looking to grow in this field, his advice is something you wouldn’t want to look over.
Lynch’s career was cast into the limelight when he took over the Fidelity Magellan Mutual Fund’s operations back in 1977. At the time, the fund had under its management about $20 million in assets. By the time 1990 came around, Lynch had grown that fund into a sizeable $13 billion, with an annual return of around 30%.
In his own unique manner, Lynch continued to beat market indexes consistently. With all that acquired wisdom and decades in the business, Lynch has only two pieces of advice that he offers those who are willing to make it big in the stock market.
1. Know What You Own
According to Lynch, one of the most vital aspects of doing well is knowing EVERYTHING that needs to be known about an investment. While some people think this is an obvious one, it’s roots go way further. Since the public market offers very high liquidity, investors often jump right into the commitment without doing their research first.
This has to be avoided, no matter how tempted you might be.
Remember that it is your hard-earned money that you’ll be investing, and the wrong decisions can make you lose all of it. Without proper industry research, you won’t be able to generate any sizeable gains. So do yourself a favor and always always always do your research before going all in.
This means knowing all the ins and outs of the company, its goals, and its prospects. One who has proper control over this information can easily decipher the effects of any internal or external changes on the future of the company. You might think, internal changes? How will one acquire that? Well, luckily, public companies are liable to disclose their internal situation publicly through industry data, earning reports, and interviews with company executives.
2. Be Ready For Volatility
For survival in the stock market, claims Lynch, one needs to harbor a strong stomach, not a brain. He further elaborates on this by saying that, to be a good investor, one only needs the mathematical skills of a 4th grader, and that the key to generating wealth in the stock market is to not get “scared” out of an investment.
No matter how prepared or knowledgeable you might be about a certain stock, market noise is often very difficult to tune out, which causes many seasoned investors to get influenced, despite knowing better.
The biggest examples of this were the pullbacks from Amazon and Apple, which saw over a 30% decline in their stock value before they hit the trillion-dollar value. Yes, sitting through that devaluation is easier said than done, which is why investors need to be extremely prepared to stomach the market volatility.
Take Away
We understand that investing can be an extremely daunting and intimidating activity- one that is even more difficult if you’re going into deep waters alone. This is why the advice of investment legends like Peter Lynch is so effective in helping traders navigate seemingly alien markets.