Stocks were down for the most part today, and so were most of our Rule Makers. My reaction: yawn. Our stocks may wobble to and fro each day, but the underlying Rule Maker businesses are solid as a rock. But, enough about today's market action. Instead, I thought it'd be fun to review some of the classic lessons of Peter Lynch's venerable Beating the Street.
Written in 1993, this book contains many timeless principles of investing, all woven together with common sense, humor, and wit -- a truly Foolish work. Best of all, the final chapter includes "25 Golden Rules," of which I've chosen 11 to share with you here. Why 11? No reason, except as an excuse to remind you that our 11 Steps to Rule Maker Investing are worth a read if you're new to our humble portfolio.
With a jester cap mounted atop his striking silver-white hair, here's Peter Lynch with 11 golden nuggets of Foolishness:
- "Investing is fun, exciting, and dangerous if you don't do any work."
- "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."
- "Often, there is no correlation between the success of a company's operations and the success of its stock over a few months or even a few years. In the long term, there is a 100% correlation between the success of the company and the success of its stock. This disparity is the key to making money; it pays to be patient, and to own successful companies."
- "You have to know what you own, and why you own it. 'This baby is a cinch to go up!' doesn't count."
- "Long shots almost always miss the mark."
- "Owning stocks is like having children -- don't get involved with more than you can handle. The part-time stock picker probably has time to follow 8-12 companies, and to buy and sell shares as conditions warrant. There don't have to be more than 5 companies in the portfolio at any one time."
- "Never invest in a company without understanding its finances. The biggest losses in stocks come from companies with poor balance sheets. Always look at the balance sheet to see if a company is solvent before you risk your money on it."
- "If you invest $1,000 in a stock, all you can lose is $1,000, but you stand to gain $10,000 or even $50,000 over time if you're patient. The average person can concentrate on a few good companies, while the fund manager is forced to diversify. By owning too many stocks, you lose this advantage of concentration. It only takes a handful of big winners to make a lifetime of investing worthwhile."
- "A stock-market decline is as routine as a January blizzard in Colorado. If you're prepared, it can't hurt you. A decline is a great opportunity to pick up the bargains left behind by investors who are fleeing the storm in panic."
- "Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what's actually happening to the companies in which you've invested."
- "Time is on your side when you own shares of superior companies. You can afford to be patient -- even if you missed Wal-Mart (NYSE: WMT) in the first five years, it was a great stock to own in the next five years. Time is against you when you own options."