Here you will discover some of Lynch's well-known quotes and what they really mean from investor's point of view.
”Gentlemen who prefer bonds don’t know what they’re missing.”
What Lynch is saying here is that stock investing offers a great alternative to bond investing. Over the past several decades, stocks have outperformed bonds. Moreover, in the current low-interest environment, bonds offer very low returns, which, after paying taxes and adjusting for inflation, provides very low (if any) returns.
”If you can't find any companies that you think are attractive, put your money in the bank until you discover some.”
Many worry that the stock market may be overpriced. So, this is what Lynch has to say about it.
”Never invest in any idea you can’t illustrate with a crayon.”
If you don’t understand the company you’re investing in (or other kinds of investments), then the chances are you will make a bad investment. The business world is constantly changing, so you need to understand the companies of which stock you buy, as well as their industries. Without this knowledge, you won’t be able to tell when a tide is turning against the company, and you will possibly end up with investment doomed to decline.
”There's no shame in losing money on a stock. Everybody does it. What is shameful is to hold on to a stock, or worse, to buy more of it when the fundamentals are deteriorating.”
Many investors hold on to their losers, no matter how hopeless these investments have become. Many prefer to have a paper loss than a real capital loss. What’s more, some will put more money into a losing stock, hoping to average down. It is important to understand why a stock is down. Perhaps, there’s a valid reason. Putting more money into bad investment will not make that investment any better.
”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.”
Investing within an area of your competence increases chances of success. There should be some industries you understand better than others. This will make it easier to understand the companies in those industries, and see how promising are particular stocks. Even Warren Buffet said he only invests within his circle of competence.
”If you don't study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.”
That’s the difference between investing in stocks and gambling with stocks. Know what you’re getting into.
”The worst thing you can do is invest in companies you know nothing about. Unfortunately, buying stocks on ignorance is still a popular American pastime.”
Many people still treat stock investing like gambling. They’re not investors, they’re gamblers. If you study the companies and their industries, then you have an edge over them. You’re also likely to understand some industries better than others. This is your circle of competence.
”My high-tech aversion caused me to make fun of the typical biotech enterprise: $100 million in cash from selling shares, one hundred Ph.D.'s, 99 microscopes, and zero revenues.”
As it looks, Peter doesn’t like high-tech, just like Warren Buffet. These industries are quickly evolving and also are high risk. On top of it: difficult to understand.
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Better to stay within your circle of competence when investing