"Beating the Street" by Peter Lynch

 Here are six important notes from the book "Beating the Street" by Peter Lynch, along with a lesson, a relevant quote, and an example for each note in tabular format:

Note	Quote	Example
1. Invest in what you know and understand.	"The simpler it is, the better I like it."	Lynch emphasizes the importance of investing in companies and industries that you have knowledge and understanding of. For example, if you work in the technology sector and understand the industry trends, you may be more equipped to evaluate tech companies for investment.
2. Do your own research and don't rely solely on Wall Street recommendations.	"The person that turns over the most rocks wins the game."	Lynch advises individual investors to conduct their own research and not rely solely on recommendations from financial analysts. For instance, if a Wall Street analyst recommends a stock, it's crucial to conduct thorough research and analysis before making an investment decision.
3. Long-term investing can lead to significant gains.	"In the long run, it's not just how much money you make that will determine your future prosperity. It's how much of that money you put to work by saving it and investing it."	Lynch emphasizes the power of compounding and the importance of long-term investing. For example, consistently investing a portion of your income over many years can lead to substantial wealth accumulation due to the compounding effect.
4. Understand the company's story and future prospects.	"You have to know what you own, and why you own it."	Lynch suggests that investors should thoroughly understand the business model, competitive advantage, and growth potential of the companies they invest in. For instance, investing in a retail company requires understanding its target market, products, competitive landscape, and potential for future expansion.
5. Be patient and ignore short-term market fluctuations.	"The stock market is filled with individuals who know the price of everything, but the value of nothing."	Lynch advises investors to focus on the long-term prospects of the companies they invest in, rather than being swayed by short-term market volatility. For example, a company's stock price may experience temporary fluctuations due to market sentiment, but its long-term fundamentals may remain strong.
6. Stay rational and control your emotions.	"The key to making money in stocks is not to get scared out of them."	Lynch emphasizes the importance of staying rational and not letting emotions drive investment decisions. For instance, selling stocks during a market downturn out of fear can result in missed opportunities for long-term gains.

These notes from "Beating the Street" provide valuable insights into Peter Lynch's approach to investing and offer guidance for individual investors. It emphasizes the importance of doing your own research, investing for the long term, understanding the companies you invest in, and remaining rational in the face of market fluctuations.

Learn Trading and Earn Wisely

 

Risk - Willingness & Unwillingness

Success involves taking calculated risks. Risk taking does not mean gambling foolishly and behaving irresponsibly. People sometimes mistake irresponsible and rash behavior as risk-taking. They end up with negative results and blame it on bad luck.

Risk-taking is relative. The concept of risk varies from person to person and can be a result of training. To both a trained mountain climber and a novice, mountain climbing is risky, but to the trained person it is not irresponsible risk-taking. Responsible risk-taking is based on knowledge, training, careful study, confidence and competence which give a person the courage to act while facing fear. The person who never does anything makes no mistakes. However, he doesn't realize that not doing anything is his biggest mistake. Many opportunities are lost because of indecision. It is habit-forming and contagious. Take risks but don't gamble. Risk-takers go with their eyes open. Gamblers shoot in the dark.

Once someone asked a farmer if he had planted wheat for the season. The farmer 

replied, "No. I was afraid it wouldn't rain." Then the man asked, "Did you plant corn?" The farmer said, "No. I was afraid of insects eating one corn. Then the man asked , " what did you plant ? " The farmer said, "Nothing. I played it safe." 

                                                           ---------from You can Win by Shiv Khera.

One can correlate the above message with the stock market trader, if we can adapt this trading psychology to our trading system, we may realize, are we trading or gambling?

Option trading using Volatility

Now here are the thumb rules for using options

1. if we expect the market to be in an uptrend in near future, and IV is less than HV, we shall BUY a call

2. if we expect the the market to be in an uptrend and IV is more than HV , we shall SELL a put

3 .if we expect the market to be in a downtrend, and IV is less than HV, we shall BUY a put

4. if we expect the market to be in a downtrend, and IV is more than HV, we shall SELL a call

"SELL HIGH VOLATILITY, BUY LOW VOLATILITY"

                    ................. more on option to continue

Myths about long term Investing

Successful investing involves two basic area of distance
1).what to buy and sell.
2). When to buy and sell.

It is not how much you make money that counts, it is how much you manage not to lose.

Let's start considering real time example,

Nifty had made a all time high on 20th January 2020 at 12440, then the market started falling, bear market started with the news of spread of Corono Virus, and index down to the low of 7550 on 23rd March 2020 almost a loss of more than 40%. Today the market has risen almost to 9600 from 23 rd March lows that is nearly more than 20% from the lower levels.

Where did the long-term investor (Buy & Hold) stand at this point ?
Very much still nearly 25% down from the January high of 12440.

To make up any loss taken in the stock market you have to achieve greater percentage gains than such  losses entail.

For eg.
 if you lose 40% of the value of an asset you have to make 50% on the reminder to make it break even.

So capital preservation is by and large more important for successful long term investment than securing an Occasional large profit.

-------------------------ManojKumar @markettoday