“Selling your winners and holding your losers is like cutting the flowers and watering the weeds.”
Peter Lynch averaged 29.2% annual return between 1977 to 1990.
His books One Up Wall Street and Beating the Street offered great insights into his success.
Here are my top 10 lessons from the legend:
“Selling your winners and holding your losers is like cutting the flowers and watering the weeds.”
“People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.”
"Owning stocks is like having children. Don't get involved with more than you can handle."
"There's no shame in losing money on a stock. Everybody does it. What is shameful is to hold on to a stock, or worse, to buy more of it when the fundamentals are deteriorating."
“This is one of the keys to successful investing: focus on the companies, not on the stocks.”
"While catching up on the news is merely depressing to the citizen who has no stocks, it is a dangerous habit for the investor."
"Never invest in any company before you've done the homework on the company's earnings, prospects, financial condition, competitive position, plans for expansion, and so forth."
"The stock market demands conviction as surely as it victimizes the unconvinced."
"In stocks – as in romance – ease of divorce is not a sound basis for commitment."
"If you can't find any companies that you think are attractive, put your money in the bank until you discover some."
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More from Thomas Chua
Buffett's letters taught me more about investing than any business school ever could.
Even after investing for 14 years, I uncover new insights every time I reread his letters.
Recently, I reread his letters from 1977 to 2020 for a third time.
Here are my key insights:
1. Moat is NEVER stagnant
A company's competitive position either grows stronger or weaker each day.
Widening the moat must always take precedence over short-term targets.
2. Commodity businesses
A business without moat will have its returns competed away.
Regardless of improvement, your competitors will quickly copy your advantage away.
Where returns on capital is dismal, reinvestment will only destroy value.
3. The flywheel effect
Buffett was preaching about the flywheel effect before it became cool.
Back then, newspapers were similar to today's platform businesses like Amazon, Meta, and App Store.
More readers beget more advertisers beget more readers.
4. Operating leverage
Companies with high fixed costs and low variable costs will see earnings rise faster than revenue.
However, it cuts both ways.
It becomes a disaster when revenue is declining.
Check out my article on how operating leverage works: https://t.co/Nv747oBAK0
Even after investing for 14 years, I uncover new insights every time I reread his letters.
Recently, I reread his letters from 1977 to 2020 for a third time.
Here are my key insights:
1. Moat is NEVER stagnant
A company's competitive position either grows stronger or weaker each day.
Widening the moat must always take precedence over short-term targets.
2. Commodity businesses
A business without moat will have its returns competed away.
Regardless of improvement, your competitors will quickly copy your advantage away.
Where returns on capital is dismal, reinvestment will only destroy value.
3. The flywheel effect
Buffett was preaching about the flywheel effect before it became cool.
Back then, newspapers were similar to today's platform businesses like Amazon, Meta, and App Store.
More readers beget more advertisers beget more readers.
4. Operating leverage
Companies with high fixed costs and low variable costs will see earnings rise faster than revenue.
However, it cuts both ways.
It becomes a disaster when revenue is declining.
Check out my article on how operating leverage works: https://t.co/Nv747oBAK0
