Peter Lynch, the retired famous fund manager than ran Fidelity's Magellan Fund. Lynch was one of the best investors of all time. His approach is as relevant today as it was when he published the runaway investment best seller known as "One Up Wall Street" in 1989. Lynch's book dealt with how individuals can improve their performance as investors based on his investing principals. Listed below is the introduction from the book and the opening paragraph from chapter one. Having recently recovered from Boston jet lag, Lynch is on my mind and seems like a good place to start.
The themes and messages in these paragraphs are timeless and are applicable today.
Introduction
The Advantages of Dumb Money"This is where the author, a professional investor, promises the reader that for the next 300 pages he’ll share the secrets of his success. But rule number one, in my book, is: Stop listening to professionals! Twenty years in this business convinces me that any normal person using the customary three percent of the brain can pick stocks just as well, if not better, than the average Wall Street expert.
I know you don’t expect the plastic
surgeon to advise you to
do your own facelift, nor the plumber to tell you to install
your own hot water
tank, nor the hairdresser to recommend that you trim your own
bangs, but this
isn’t surgery or plumbing or hairdressing.
This is investing, where the smart money isn’t
so smart, and the dumb
money isn’t really as dumb as it thinks.
Dumb money is only dumb when it listens to the
smart money.
In fact, the amateur investor has numerous
built-in
advantages that, if exploited, should result in his or her
outperforming the
experts, and also the market in general.
Moreover, when you pick your own stocks, you
ought to outperform the
experts. Otherwise, why bother?
I’m not going to get carried away and
advise you to sell all
of your mutual funds. If that started to happen on any large
scale, I’d be out
of a job. Besides, there’s nothing wrong with mutual funds,
especially the ones
that are profitable to the investor. Honesty and not immodesty
compels me to
report that millions of amateur investors have been
well-rewarded for investing
in Fidelity Magellan, which is why I was invited to write this
book in the
first place. The mutual fund is a wonderful invention for
people who have
neither the time nor the inclination to test their wits
against the stock
market, as well as for people with small amounts of money in
invest who seek
diversification.
It’s when you’ve decided to invest on your
own that you
ought to try going it alone. That means ignoring the hot tips,
the
recommendation from brokerage houses, the latest “can’t miss”
suggestion from
your favorite newsletter-in favor of your own research. It
means ignoring the
stocks that you hear Peter Lynch, or some similar authority,
is buying.
There are at least three good reasons to
ignore what Peter
Lynch is buying: (1) he might be wrong! (A long list of losers
from my own
portfolio constantly reminds me that the so-called smart money
is exceedingly
dumb about 40 percent of the time): (2) even if he’s right,
you’ll never know
when he’s changed his mind about a stock and sold; and (3)
you’ve got better
sources, and they’re all around you. What makes them better is
that you can
keep tabs on them, just as I keep tabs on mine.
If you stay half-alert, you can pick the
spectacular
performers right from you place of business or out of the
neighborhood shopping
mall, and long before Wall Street discovers them. It’s
impossible to be a
credit-card-carrying American consumer without having done a
lot of fundamental
analysis on dozens of companies-and if you work in the
industry, so much the
better. This is where you’ll find the ten-baggers. I’ve seen it
happen again and again from my
perch at Fidelity."
Part 1
Preparing to Invest
"Before you think about buying stocks, you ought to have made some basic decisions about the market, about how much you trust corporate America, about whether you need to invest in stocks and what you expect to get out of them, about whether you are a short-or long-term investor, and about how you will react to sudden, unexpected and severe drops in price. It’s best to define you objectives and clarify your attitudes (do I really think stocks are riskier than bonds?) beforehand, because if you are undecided and lack conviction, then you are a potential market victim, who abandons all hope and reason at the worst moment and sells out at a loss. It is personal preparation, as much as knowledge and research, that distinguishes the successful stock picker from the chronic loser. Ultimately it is not the stock market nor even the companies themselves that determine the investor’s fate. It is the investor."