Big investor Peter Lynch: How can I soothe my fearful heart when it crashes?

Peter Lynch’s investment philosophy is not only suitable for the secondary market, but also very suitable for investors in the primary market to study and figure out repeatedly.

Whenever the stock market crashes and I worry about the future, I recall the fact that there have been 40 stock market crashes in the past to soothe my fearful heart. I told myself that the stock market crash was actually Good thing, let us have another good opportunity to buy the stocks of those very good companies at very low prices.


Perhaps in the future there will be more stock market crash, but since I can not predict when it will happen the stock market crash, and as far as I know, and I along with other investment experts to participate in Barron’s Roundtable investment can not be predicted, so why Fantasy that each of us can prepare in advance to avoid the disaster? Of the 40 stock market crashes that occurred in the past 70 years of history, even if I predicted 39 of them in advance and sold all the stocks before the crash, I would regret it in the end. Because even the stock market crash that fell the most, the stock price eventually rose back and rose even higher.

There is nothing surprising about the stock market falling. This kind of thing always happens again and again, just like the cold winter in Minnesota is coming again and again, it is just a very common thing. If you live in a cold climate zone, you have long been accustomed to it, and you have predicted in advance that there will be a time when the air will drop to freezing, then when the outdoor temperature drops below zero, you will definitely not panic and think that the next one The ice age is coming. And you will put on a fur coat, sprinkle some salt on the sidewalk to prevent freezing, and everything is done, you will comfort yourself like this-winter is here, can summer be far behind? By then the weather will be warm again!

The relationship between successful stock pickers and the stock market decline is the same as the relationship between Minnesota residents and cold weather. You know that stock market crashes will always happen, and you are ready to survive the stock market crash beforehand. If you are optimistic about a big drop along with other stocks, you will quickly seize the opportunity to buy more while they are low.

After the stock market crash in 1987, the Dow Jones index fell by 508 points in one day. Those investment experts unanimously predicted that the stock market would collapse, but afterwards proved that even though the Dow Jones index plummeted by as much as 1,000 points (calculated from the highest point of the index in August, the decline) As high as 33%), the end of the stock market did not come as people expected. This is just a normal stock market adjustment. Although the adjustment is very large, it is only the most recent of the 13 stock market adjustments in the 20th century that fell by more than 33%.

Since then, although there has been another stock market crash with a decline of more than 10%, it is only the 41st time in history. In other words, even if this is a stock market crash with a decline of more than 33%, it is only in history. It’s only the 14th time, no fuss. In the annual report of the Magellan Fund, I often remind investors that this kind of stock market correction is inevitable and will always happen. Don’t panic.

Whenever the stock market crashes and I worry about the future, I recall the fact that there have been 40 stock market crashes in the past to soothe my fearful heart. I told myself that the stock market crash was actually Good thing, let us have another good opportunity to buy the stocks of those very good companies at very low prices.

(2) Extended reading: Peter Lynch’s shocking speech

Peter Lynch’s speech at the 1990 Annual Gathering of Harvard Business School’s New York Club-Dinner is the most comprehensive and precious investment philosophy so far. The following summary is selected from the speeches delivered at the banquet. These investment concepts are not only suitable for the secondary market, but also very suitable for investors in the primary market to study and figure out repeatedly.

Author: Peter Lynch

“The organizer of the event told me that I can talk about anything. I only know one thing-stocks. So I quickly decided: I should talk about stocks. I will try to review a few points, which are not for me. Words are important, and I think they are also important for people trying to make money in the stock market.”

Rule 1: Know the stocks you hold

“The first one rule is that you must know the stock you hold. It sounds simple, but we know that can do that very few people. You should be able to in a 12 within two minutes or less short time The year-old kid explains why you bought a stock. If you can’t do this, if the only reason you buy the stock is because you think its price will rise, then you shouldn’t buy it.”

“I can tell you a simple common stock-this type of stock most people will buy. It is a relatively ordinary company, the product is also very simple. This product has 1M memory CMOS, bipolar RSC floating point I/O interface processor, 16-bit dual-channel memory, Unix operating system, Whetstone silicone emitter with millions of floating point operations per second, high bandwidth and 15 microsecond computing power.”

“If you hold this kind of junk stock, you will never be able to make money–never. It is very important to understand the stocks you hold. The business you invest in should be simple. It is me who brings me good returns. the company simply can understand, such as Dunn donuts (Dunkin ‘donuts), Laquinta motels, etc. can bring a good return is that these companies. “

Rule 2: Making economic forecasts is futile

“Forecasting the economy is completely useless. Don’t try to predict interest rates. Alan Greenspan is the head of the Federal Reserve. He can’t predict interest rates. He can raise or lower interest rates, but he can’t tell you in 12 months or two years. What the interest rate will be. You cannot predict the stock market.”

“I want to know this information. For me to say, when the recession is going to happen informed that this information is helpful. It will be very good.

Most of you here should remember the recession from 1980 to 1982, which was the worst recession since the Great Depression. At that time, our unemployment rate reached 15%, inflation reached 14%, and the base interest rate was as high as 20%. Has any of you received a call telling you that there will be a recession? Do you remember any of the magazines you often read that have successfully foreseen that situation? No one told me that such a tragic situation would happen. “

“You may not believe how much time people are wasting on predicting what will happen in a year. Of course it is great to know in advance what will happen a year in advance. But you will never know. So don’t waste your time. There is no benefit. “

Rule 3: Don’t worry about the index

“You have to look for companies like McDonald’s and Walmart . Don’t worry about the stock market. Look at Avon. In the past 15 years, Avon’s stock has fallen from $160 to $35. 15 years ago it was a great company. But now , All the Miss Avon were out of their way. She knocked on the door, but the housewives either went to work or played outside with their children. The things they sold could be bought in supermarkets or pharmacies. Avon’s profit base fell apart. This company has only been great for about 20 years.”

“The closing price of the stock market today is 2,700 points. Even if today’s closing price is 9,700 points, Avon is still a miserable company. The stock price has fallen from $160 to $35. So no matter how the stock market performs in the past 15 years, you are at Avon The investment in the company has been bleak.”

“It was also during this period that McDonald’s performed very well. They entered the overseas market, they launched breakfast and take-out, and they did a good job. During this period, their performance has experienced a magical rise and profitability. Increased to 12 times the original price, the stock price rose to 12 times the original price. If the closing price of Dow Jones today is 700 points instead of 2,700 points, your investment in McDonald’s can still make a good return. Its stock price may be $20, Instead of $30, you can still get 8 or 9 times the profit.” “Focus on individual stocks and forget about the big picture.”

Rule 4: Don’t be impatient, you have plenty of time

“You have charged enough time to do so think: Do you think of a concept we must immediately put it into practice in fact you have more than enough time for you to conduct adequate research on the company brought me good returns. I pay attention to them in the second, third, or fourth and fifth years before buying the stocks. Losing money in the stock market will lose money quickly, but making money but earning very slowly. There should be a difference between making money and losing money. There is a certain balance, but in reality there is no.”

“I want to talk to you about Wal-Mart, a company that went public in 1970. At that time, they had 38 stores, a beautiful historical operating record and a solid balance sheet. After the spin-off – of course, Wal-Mart’s The stock’s popularity is never due to the spin-off reason-after adjustment, its price is 8 cents per share. You might tell yourself that if I don’t buy Wal-Mart’s stock next month, I will miss a lifetime The best investment opportunity.”

“Five years later, Wal-Mart has 125 stores and its profit has increased to 7 times that of 5 years ago. Guess what? The stock price rose to 5 times of 5 years ago, reaching 41 cents per share.” “As of December 1980, Wal-Mart has 275 stores and its profits have risen to 5 times what it was 5 years ago. Guess what? The stock price has risen to 5 times what it was 5 years ago, and it is now $1.89 per share.” r> “In December 1985, it had 859 This does not include Sam’s Club. During this five-year period, profits have risen six times, and the stock price is now $15.94. So you can tell yourself, oh my god, this stock has gone from 80 The cents rose to $15.94. I bought too late. It’s crazy. I shouldn’t buy these cumbersome giant companies again. No, it’s not too late for you to buy at this time, not at all. Because today Wal-Mart’s The closing price is $50. You have plenty of time to buy.”

“In 1980, Wal-Mart has been on the market for 10 years. Its sales revenue exceeded 1 billion U.S. dollars, its balance sheet is extremely good, and its operating record is very good. These are the real surprises-investing in Wal-Mart may not give You brought huge profits, but if you bought Wal-Mart in 1980, you can still earn 25 times as much as you hold it today. During this period, this rate of return will beat the Magellan Fund. By the way, here it is. I did not own Wal-Mart during that time. At the time, I thought its stock price was too high.”

Get Fidelity’s job: “When I applied to work for Fidelity, Fidelity had 80 employees. Today, our total number of employees is 7,200. At that time, 25 Fidelity job applicants were from Harvard, and there were 50 in total. Job seekers competed for 3 positions. I’m Wharton. We used to joke that Harvard is a second-rate school and Wharton is the first-class school. Anyway, there are many job seekers from Harvard. But I’m the only one to give The president worked as a caddie for 11 years, so I got one of three positions.”

“Earlier when I worked at Fidelity, we had a joke: The chance to work until next Christmas is a good Christmas bonus. This is a terrible start.”

Posted by:CoinYuppie,Reprinted with attribution to:
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