Peter Lynch: How To Deal With a Falling Stock (Explained) скачать в хорошем качестве

Peter Lynch: How To Deal With a Falling Stock (Explained)

Peter Lynch was one of the greatest investors of all time. In this 1994 excerpt he shares advice on how to deal with a falling stock. We will elaborate on Lynch’s points and demonstrate examples of how you can apply his advice within your own investment portfolio. Peter Lynch was one of the greatest investors of all time. As the manager of the Magellan Fund at Fidelity Investments between 1977 and 1990, Lynch averaged a 29.2% annual return, consistently more than doubling the S&P 500 stock market index and making it the best-performing mutual fund in the world. During his 13 year tenure, assets under management increased from $18 million to $14 billion. In this 1994 recording, Lynch shares some of his investing wisdom that has helped make him and his clients millions. In this excerpt he shares advice on how to deal with a falling stock. At the end of this 4 minute clip, we will elaborate on Lynch’s points and demonstrate examples of how you can apply his advice into practice within your own investment portfolio. Buy what you know, conversely if you don’t know, don’t buy At first, this advice appears so simple and obvious that it doesn’t seem to really add much insight. However, it is a surprisingly common trap for investors to fall into. This is why By understanding what you own, you have a better sense of the value of the company and what the potential upside and downside is in different scenarios. Only then you can make a rational evaluation of the potential risks involved with an investment. This is also referred to as investing in your circle of competence by Buffett. Lynch also is an advocate of using your own local knowledge which can give individual investors an edge. If you don’t understand a stock you bought and the price falls, you won’t know if the decline is justified or not. This could cause you to sell the stock prematurely to cut losses, when in reality market volatility simply caused the stock to become undervalued. Or you could also end up continuing to hold onto a stock that has fundamental issues which you are not fully aware of. When you don’t know, you are setting yourself up for failure, because you really don’t have any plan for when a stock falls in price. The second key point is debunking the myth that a stock will come back. While over the long run an index like the S&P500 has trended upwards, that isn’t a guarantee that all the individual stocks within the index go up as well. Many stocks do, but some businesses eventually face challenges and never end up fully recovering. Going back to the first point, you need to understand the fundamentals of the business. If you don’t, then you are instead only hoping the price will come back. And unfortunately, hope is not an effective strategy. So, when the price of a stock declines you should ask yourself some questions: Is the decline justified relative to those fundamentals? If you are paying too high a price, there is no reason for it to “come back” to a price it really was never justified to trade at. Are you basing your assumption on past performance? Looking at the past can get you into trouble if you miss changing industry trends that will impact the business in the future. Just look at most retail stores with the exception of the big-box discount stores and a few others, many have not and likely will not recover to their past peaks. Low share price doesn’t mean low risk And it doesn’t necessarily mean a stock is cheap either. A stock could have a low share price and still be expensive relative to fundamentals like current earnings and expected growth. Conversely, you could have stocks with share prices over a thousand dollars like Alphabet or AutoZone, that could actually be cheap by some fundamental metrics. Share price alone doesn’t tell you anything related to value. And as Lynch discussed, you do not have less downside by investing in a stock with a low share price. $1000 times 0 is the same as $1 times 0. They are both 0. If anything, seeing a low share price is likely a warning sign about the business to look into further. And many times, these stocks are better off avoided all together. DISCLAIMER: This video is a resource for educational and general informational purposes and does not constitute actual financial advice. No one should make any investment decision without first consulting his or her own financial advisor and/or conducting his or her own research and due diligence. There is no guarantee or other promise as to any results that may be obtained from using this content. Investing of any kind involves risk and your investments may lose value.