3 Easy Investing Principles that ANY Investor can Master
After Warren Buffett, Peter Lynch is probably one of the most successfully famous investors. He worked as a mutual fund manager and his fund (called the Magellen Fund) grew an astonishing 29% a year between 1977 and 1990.
Peter Lynch lived by three very simple investing principles. Each a really important no matter what type of investor you are. Even if you only invest in Index Funds or ETFs, examine his principles and learn to live by them.
1. Buy what you know
Peter Lynch was famous for saying: “Know what you buy and why you bought it.” In other words, make sure you understand what you buy. If you can’t explain to someone what the company does then why do you own it?
If you invest in ETFs or Index Funds why do you own the ones you picked? Did you pick them based on a sector you liked? Maybe you picked on because it mirrored the S&P 500. Whatever the reason, make sure there is a reason.
2. Do your homework
This is so important. If you’re investing in individual stocks like I do, doing your homework is so important. You don’t have to be an accountant to understand simple trends. Dose the company have a lot of debt? How does it pay its dividends?
Financial Statements are nothing to be afraid of. And they’re public. Every public company that you can invest in MUST disclose their financial statements every quarter. They can be found on the company’s website.
Look at the balance sheet. Just like your own personal finances, the balance sheet can show you a company’s assets and liabilities. The income statement will show you how profitable the company is. Similarly, the cash flow statement shows you how much cash the company is able to generate from various activities in order to pay its expenses.
Traditionally, companies with strong balance sheets (meaning more assets than debt), years and years of profitability (increasing their revenues) and lots of cash on hand (like the emergency fund to pay expenses) do well over time. Pretty simple, isn’t it?
If you’re in ETFs and Index Funds, you can’t just ignore these either. Taking an annual review is always good.
This year I reviewed an ETF that I owned and realized that the company’s within the ETF were no longer ones that I liked. So I sold that ETF and bought a different one.
FIND OUT MY BOUGHT AND SOLD STOCKS!
What are the fees like? Do they still align to your investment plan? Have the increased? If so, why?
3. Don’t try to time the market – invest for the long term
If you haven’t heard this before let me be the first the SHOUT IT OUT LOUD:
“DON’T TRY TO TIME THE MARKET!”
It’s a fools game to try to time the stock market. No one can predict it and no one ever will. Instead, have a long term strategy that is 20-30 years in time.
Historically, the S&P 500 has increased by about 10% per year. Here is proof:
I’ve highlighted the years that were above 10% and below 0%. There downs, but there were more ups. Over this 33 year span, you would have averaged 12% increases.
So what are you waiting for? GET INVESTING NOW!
SUBSCRIBE TO MY MONTHLY STOCK ANALYSIS AND PICKS
Related Posts
5 Things New Investors Should Never Do
5 Trading and Investing Mistakes I Made
What is a Recession?
Bull vs. Bear Market
Stock Picks for Stock Market Crash
