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Take some tips from a man who knows how to investIF YOU want to invest successfully, you should take note of the advice of the world's greatest investors. One of the contemporary giants is Peter Lynch, whose skill built Fidelity's Magellan Fund into America's largest unit trust. Here are his 10 rules for successful investing.
Don't be intimidated by the professionals But the amateur investor is actually in a better position to succeed, because the professionals act like a mob. They all act the same and think the same. Very few of them are wealthy. The individual investor has the advantage of being able to think independently of the herd.
Look in your own backyard Based on what he saw there a few years ago, he went heavily into retailers' shares. Within five years, $40 000 invested equally among four popular retail stocks would have grown to more than $500 000. Of course, your "backyard" may include the business or industry you work in, where you can see what's worth investing in because you readily understand the possibilities.
Don't buy something you can't easily explain In the US it would have saved investors from losing a bundle in mysterious biotechnology and memory-module shares. On the other hand, they would have done very well buying into easy-to-understand companies such as Walt Disney, Coca-Cola, McDonald's and Nike.
Make sure you have the stomach for share-market investing If you are susceptible to selling everything in a panic, you should avoid shares and unit trusts altogether.
Avoid hot stocks in hot industries When an industry gets too popular, nobody makes money there any more. But great companies in cold, non-growth industries are consistent winners, Lynch argues. In a lousy industry the weak drop out and the survivors get a bigger share of the market. A company that can capture an ever-increasing share of a stagnant market is a lot better off than one that has to struggle to protect a dwindling share of an exciting market.
Owning shares is like having children - don't get involved with more than you can handle Your portfolio doesn't need to contain more than five companies at any one time.
Don't try to predict the future Instead, concentrate on what's actually happening to the companies in which you're interested. Their individual performance is what's important – not the performance of the economy, or the market, or any of the indices.
Avoid weekend worrying The key to making money in shares is not to get scared out of them.
Never invest in a company without first understanding its finances
Don't expect too much, too soon The stock market is totally random over one or two years, but over five or more years will deliver fairly good results.
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