Beating the Street

by Peter Lynch

As much as I enjoyed managing a portfolio the size of the GNP of Ecuador, I missed being home to watch the children grow up. They change fast. They almost had to introduce themselves to me every weekend. I was spending more time with Fannie Mae, Freddie Mac, and Sallie Mae than I spent with them.

When you start to confuse Freddie Mac, Sallie Mae, and Fannie Mae with members of your family, and you remember 2,000 stock symbols but forget the children’s birthdays, there’s a good chance you’ve become too wrapped up in your work.

I was celebrating my 46th birthday with my wife, Carolyn, and my daughters, Mary, Annie, and Beth. In the middle of the party, I had a revelation. I remembered that my father had died when he was 46 years old.

recognize that you’re only going to exist for a little while, whereas you’re going to be dead for a long time.

nobody on his deathbed ever said: “I wish I’d spent more time at the office.”

I tried to convince myself that my children required less of my attention than they had when they were younger. In my heart, I knew the reverse was true.

Picking stocks for worthy causes was the best of all possible worlds,

There’s a Tolstoy story that involves an ambitious farmer. A genie of some sort offers him all the land that he can encircle on foot in a day. After running at full speed for several hours, he acquires several square miles of valuable property, more soil than he could till in a lifetime, more than enough to make him and his family rich for generations. The poor fellow is drenched with sweat and gasping for breath. He thinks about stopping—for what’s the point of going any further?—but he can’t help himself. He races ahead to maximize his opportunity, until finally he drops dead of exhaustion. This was the ending I hoped to avoid.

As an average investor, you don’t have to own more than a handful of stocks and you can do the research in your spare time.

If no company appeals to you at the moment, you can stay in cash and wait for a better opportunity. You don’t have to compete with the neighbors, the way professionals do, by publishing your quarterly results in the local shopper.

The worst thing you can do is to invest in companies you know nothing about.

Players of the market may spend weeks studying their frequent flier miles, or poring over travel guides in order to carefully map out a trip, but they’ll turn around and invest $10,000 in a company they know nothing about.

Yet history shows that over a long period of time assets will grow much faster when they are 100 percent invested in stocks.

putting money into stocks is far more profitable than putting it into bonds, certificates of deposit, or money-market accounts.

Gentlemen who prefer bonds don’t know what they’re missing.

Never invest in any idea you can’t illustrate with a crayon.

“I try to stress the idea that a portfolio should have at least ten companies, with one or two providing a fairly good dividend,” says Ms. Morrissey. “But before my students can put any stock in the portfolio, they have to explain exactly what the company does. If they can’t tell the class the service it provides or the products it makes, then they aren’t allowed to buy. Buying what you know about is one of our themes.” Buying what you know about is a very sophisticated strategy that many professionals have neglected to put into practice.

find: IBM is an approved stock that everybody knows about and a fund manager can’t get into trouble for losing money on it. The St. Agnes kids can be forgiven this one foolish attempt to imitate their elders on Wall Street.

100 shares of Disney (“Every kid can explain this one.”) 100 shares of Kellogg (“They liked the product.”) 300 shares of Topps (“Who doesn’t trade baseball cards?”) 200 shares of McDonald’s (“People have to eat.”) 100 shares of Wal-Mart (“A remarkable growth spurt.”) 100 shares of Savannah Foods (“They got it from Investor’s Daily.”) 5,000 shares of Jiffy Lube (“Cheap at the time.”)

600 shares of Hasbro (“It’s a toy company, isn’t it?”) 1,000 shares of Tyco Toys (Ditto.) 100 shares of IBM (“Premature adulthood.”) 600 shares of National Pizza (“Nobody can turn down a pizza.”) 1,000 shares of Bank of New England (“How low could it go?”)

A good company usually increases its dividend every year. You can lose money in a very short time but it takes a long time to make money. The stock market really isn’t a gamble, as long as you pick good companies that you think will do well, and not just because of the stock price. You can make a lot of money from the stock market, but then again you can also lose money, as we proved. You have to research the company before you put your money into it.

When you invest in the stock market you should always diversify. You should invest in several stocks because out of every five you pick one will be very great, one will be really bad, and three will be OK. Never fall in love with a stock; always have an open mind. You shouldn’t just pick a stock—you should do your homework. Buying stocks in utility companies is good because it gives you a higher dividend, but you’ll make money in growth stocks. Just because a stock goes down doesn’t mean it can’t go lower. Over the long term, it’s better to buy stocks in small companies. You should not buy a stock because it’s cheap but because you know a lot about it.

Evidence that adults as well as children can beat the market averages with a disciplined approach to picking stocks

schedule. If you had put $1,000 in the S&P 500 index on January 31, 1940, and left it there for 52 years, you’d now have $333,793.30 in your account. This is only a theoretical exercise, since there were no index funds in 1940, but it gives you an idea of the value of sticking with a broad range of stocks.

Hold no more stocks than you can remain informed on. Invest regularly. You want to see, first, that sales and earnings per share are moving forward at an acceptable rate and, second, that you can buy the stock at a reasonable price. It is well to consider the financial strength and debt structure to see if a few bad years would hinder the company’s long-term progress. Buy or do not buy the stock on the basis of whether or not the growth meets your objectives and whether the price is reasonable. Understanding the reasons for past sales growth will help you form a good judgment as to the likelihood of past growth rates continuing.

Understanding the reasons for past sales growth will help you form a good judgment as to the likelihood of past growth rates continuing.

In dieting and in stocks, it is the gut and not the head that determines the results.

While catching up on the news is merely depressing to the citizen who has no stocks, it is a dangerous habit for the investor.

You can’t see the future through a rearview mirror.

اداء صندوق استثماري بناء على ماضيه

I told the reporter, Georgette Jasen, that these were just “two of about ten stocks I added to… if they go lower, I’ll buy more.”

The best way not to be scared out of stocks is to buy them on a regular schedule, month in and month out, which is what many people are doing in the 401 (k) retirement plans and in their investment clubs,

You can put your assets in a good mutual fund, but without faith you’ll sell when you fear the worst, which undoubtedly will be when the prices are their lowest.

What sort of faith am I talking about? Faith that America will survive, that people will continue to get up in the morning and put their pants on one leg at a time, and that the corporations that make the pants will turn a profit for the shareholders.

The Even Bigger Picture tells us that over the last 70 years, stocks have provided their owners with gains of 11 percent a year, on average, whereas Treasury bills, bonds, and CDs have returned less than half that amount.

Because the famous Crash was followed by the Depression, we’ve learned to associate stock-market collapses with economic collapses, and we continue to believe that the former will lead to the latter. This misguided conviction persists in the public mind,

One reason bonds are so popular is that elderly people have most of the money in this country, and elderly people tend to live off interest.

Young people, who have earning power, are supposed to buy all the stocks, to build up their assets until they, too, are old and need to live off interest.

popular prescription—stocks for the young, bonds for the old—is becoming obsolete. People aren’t dyin...

eventually a portfolio of stocks will produce more income than a fixed yield from a portfolio of bonds.

Quality growth funds, in which the managers invest in medium-sized and large companies that are well established, expanding at a respectable and steady rate, and increasing their earnings 15 percent a year or better. This cuts out the cyclicals, the slower-growing blue chips, and the utilities.

Since 1926, emerging growth stocks have outperformed the S&P 500 by a substantial margin, so it’s always a good idea to keep something invested here.

don’t spend a lot of time poring over the past performance charts. That’s not to say you shouldn’t pick a fund with a good long-term record. But it’s better to stick with a steady and consistent performer than to move in and out of funds, trying to catch the waves.

in 1991, when people were still euphoric about German prospects, the stock market there did poorly, whereas in the first half of 1992, when the news from Germany was all gloomy, the stock market did well.

Clearly, the best time to buy a country fund is when it is unpopular and you can get it for a 20–25 percent discount.

Put as much of your money into stock funds as you can. Even if you need income, you will be better off in the long run to own dividend-paying stocks and to occasionally dip into capital as an income substitute.

It’s best to divide your money among three or four types of stock funds (growth, value, emerging growth, etc.) so you’ll always have some money invested in the most profitable sector of the market.

When you add money to your portfolio, put it into the fund that’s invested in the sector that has lagged the market for several years.

Trying to pick tomorrow’s winning fund based on yesterday’s performance is a difficult if not futile task. Concentrate on solid performers and stick with those. Constantly switching your money from one fund to anothe...

The Magellan Fund did not start with me. Ned Johnson started it in 1963 as the Fidelity International Fund, but a tax on foreign investments, promoted by then-President Kennedy, forced the managers of international funds to sell their foreign stocks and buy domestic stocks.

My diaries are full of such missed opportunities, but the stock market is merciful—it always gives the nincompoop a second chance.