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Hello and welcome to this new video from the Intelligent Investors channel. Today I'm going to talk to you about a great American investor, but this time it's not Warren Buffett, but Peter Lynch. He has written very well-known books in the value investing world, two of which have been translated into French.
If you had enough to win in the stock market and beat Wall Street, you'll find the links in the description for those interested. These books are essential reading for value investors. So, in this video, I'm going to talk about the seven most important principles to remember for successful stock market investing, according to Peter Lynch.
Sometimes these principles will contradict those of my mentor, Warren Buffett, but to invest well in the stock market, it's not enough to just copy someone. You have to learn, find new ideas, and mix all this information, adding your own personality. But above all, you have to know what you're doing.
Some people will get excellent results solely from dividends, others from growth companies, and still others with obscure, little-known companies that will eventually explode. So let's get started right away. With the first principle for investing in the stock market according to Peter Lynch, investing in the stock market requires composure and discipline more than intelligence.
Most people starting out in the stock market think that you need to master very complex formulas to achieve good investment results, when in fact, you just need to have the right attitude to know how to manage all situations. This is, of course, easier said than done, but what you need to remember is that volatility is part of the financial markets.
Sometimes prices are driven upwards and stocks become totally overvalued, and other times prices plummet, with stocks trading at ridiculously low prices compared to the real value of the companies. If investors don't know how to manage these two types of situations, their results will be mediocre or even bad.
Peter Lynch likes to see markets fall because it simply allows him to invest in the companies he coveted at a lower price. Everyone finds it logical to buy things when their price falls, except with stocks, which is totally absurd. Principle number 2: The investor An individual investor can outperform a professional.
Peter Lynch is convinced that an individual investor can achieve better results than a professional investor. Why? Because financial professionals have the same sources of information, so they tend to gravitate towards the same types of investments. They also face pressure to attract new clients, and to do this, they engage in what's called portfolio makeup.
This means that at the end of the year, they buy stocks that have risen significantly to show that they own these securities and have benefited from the increase, when in fact they often arrived after the rise had already occurred. Conversely, they get rid of stocks that have fallen sharply, realizing a loss that they carefully avoid disclosing to the press to demonstrate their foresight in not choosing losing stocks for their portfolio.
The individual investor, on the other hand, doesn't care about impressing anyone; they manage their own money. They can therefore take their time to analyze, study, calculate, and even test the products of the companies they're considering to make the best choice. investment, but above all, he can afford to wait for the best time to invest during those famous 20 or 30% market drops that only happen about once every ten years.
The professional, on the other hand, has to make the most of their cash flow so as not to drag down the annual performance of their fund. They will therefore be tempted to invest constantly at almost any price. Principle number 3: buying a stock without studying the company is like playing poker without looking at your cards.
If great investors like Peter Lynch or Warren Buffett tell us that investing in the stock market is simple, they don't mean that results will come without effort. However, you must dedicate time to studying and analyzing companies, taking a look at their finances, evaluating their value, and deciding at what price you would be willing to buy.
It can also be good to find out about the overall market situation and consider the future needs of consumers. Basically, will the product or service sold by the company still exist in 10 or 20 years? If you are not prepared to do Peter Lynch's advice is simply to invest in "tools," meaning a basket of stocks.
Your performance will remain satisfactory, and you won't have to do the work of analyzing them. Principle number 4: Invest in the stock market for the long term. Peter Lynch is a long-term investor. His goal throughout his investing career has been to unearth hidden gems. He even gave them a nickname: " Bagger themes," meaning stocks whose price would increase tenfold.
To have a major theme in your portfolio, it's clear that an investor shouldn't get rid of their stocks as soon as they make a 30% or 50% profit. Peter Lynch strongly advises investors to hold onto the shares of companies with good financial performance because they will continue to enrich you as long as they perform well.
These are the "Bagger themes" of tomorrow. Furthermore, the time you save by not wondering when to sell can be devoted to your search for new Bagger themes. Principle number 5: Invest in As you know, Warren Buffett advises us to invest within our circle of competence. Peter Lynch puts it a little differently, but the principle is the same: he advises us, above all, to open our eyes and ears.
You thought Netflix was a good idea when you subscribed a few years ago? Well, it might have been a great investment opportunity. You've always appreciated and used the Google search engine and you're a big YouTube user, so Alphabet could have been a wise investment as well. In short, you understand the principle: if you believe a product or service is gaining momentum all around you, it's a good idea to research the company in question to see if it's publicly traded and, if so, to see if its fundamentals are solid.
If you get in early enough, you might just have your next Thannberger in your portfolio. Principle number 6: analyze the company's P/E ratio. To make money in the stock market, you certainly need to buy financially successful companies, but you also need to buy them at low prices to be able to... To achieve a decent return and determine if you're overpaying for a stock, Peter Lynch simply suggests checking the company's price-to- earnings ratio (P/E ratio).
However, it's crucial to analyze a single year's performance, as profits can be inflated or deflated by accounting entries following a sale, for example, or an exceptional loss. This is why the P/E ratio needs close examination, and you must try to understand the reasons for significant fluctuations.
Peter Lynch reminds us that buying a stock with an excessively high P/E ratio risks disappointing returns, even if the company is performing well. The number one principle of this analysis is the company's financial strength. While the stock market offers the best long-term returns, financial crises are inevitable, and when they occur, it's best to have a portfolio of financially sound companies.
To identify these, Peter Lynch suggests always paying attention to the levels Regarding a company's debt and cash, good companies tend to generate a lot of cash and accumulate it until it can be reinvested or distributed to shareholders. It's always a good thing to be a shareholder in this type of company.
Conversely, a company with less cash than debt could face difficulties during a crisis. If its business is cyclical and its sales fall sharply, this type of company might be forced to take on new debt to weather the storm or launch a capital increase, which will dilute shareholders' stakes and reduce the value of your investment.
It is therefore essential to perform this analysis, which is quite quick. Some websites, like other stock exchanges, give you the level of net debt or cash, which greatly facilitates the analyst's work. So, we have discovered seven basic principles for investing well in the stock market according to Peter Lynch.
These principles should be useful to improve the performance of your portfolio. Don't forget to give your opinion on the video in the comments and give it a thumbs up or down; this will help the channel. You can also share this video if you liked this content. Subscribe so you don't miss the release of the next videos. See you soon on the Smart Investors channel!
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