Peter Lynch, the greatest mutual fund manager ever, gave us these warnings to individual investors which is notable in this current market fluctuation.

1. Sometime in the next month, year, or three years, the market will decline sharply.
2. Market declines are great opportunities to buy stocks in companies you like. Corrections -a Market’s definition of going down a lot- push outstanding companies to bargain prices.
3. Trying to predict the direction of the market over one year, or even two years, is impossible.
4. To come out ahead you don’t have to be right all the time, or even a majority of the time. You don’t have to “kiss all the girls”, I’ve missed my share of tenbaggers but it has not kept me from beating the market. (Tenbagger is a Lynch’s term for a stock which make ten fold profit. It means to win, you must own the right portfolio).
5. The biggest winners are surprises to me. It takes years, not months or days, to produce big results.
6. Different categories of stocks have different risks and rewards.
7. Stock prices often move in opposite directions from the fundamentals but long term, the direction and sustainability of profits will prevail.
8. Just because a company is doing poorly does not mean it can’t do worse.
9. Just because the price goes up does not mean you’re right.
10. Just because the price goes down does not mean you’re wrong.
11. Buying a company with mediocre prospect just because the stock is cheap is a losing technique.
12. Selling an outstanding fast grower because its stock seems slightly overpriced is a losing technique.
13. Companies do not grow for no reason, nor do fast growers stay that way forever.
14. Don’t become so attached to a winner that complacency sets in and you stop monitoring the story (the fundamental).
15. Be careful pruning and rotation based on fundamentals, you can improve your results. When stocks are out of line with reality and better alternatives exist, sell and switch them.
16. You will not improve results by pulling out the flowers and watering the weeds. (It means your gain will not be extraordinary if you sell the winners too soon and hold the losers too long.)
17. If you don’t think you can beat the market, then buy a mutual fund and save yourself a lot of extra work and money.
18. Keep an open mind to new ideas and be humble. Listen to what Charlie Munger had said: Acknowledging what you don’t know is the dawning of wisdom.

(c) http://pratolo.com Sept 2008

1. Kimmy Says:
   October 28th, 2008 at 8:17 am

   People should read this.