Peter Lynch, the legendary investor who made a 29.4% annual return in a 13-year period between 1977 to 1990.
When I was reading Peter Lynch, I realized he had a lot of good points regarding stock trading...
After all, he is worshipped by many as one of the legendary investors...
During his years in the Fidelity Magellan fund as a manager, he makes an average of 29.4%+ for his investors.
While you can say 29.4% wasn't much, but this number beats 99% of the fund managers.
So, I'll share some of the things that I find very wise and useful!
In his book, he mentioned 3 things you have to address before consider investing in a stock.
Do I own a House?
Do I need the money?
Do I have the personal qualities that will bring me success in stocks?
If you don't have a house yet, you should buy one before investing in the stock market for the following reasons...
A house gives you the roof over your head, and give you a place to fall back into when the stock market is acting up...
A house is a great investment in itself... Houses in most large U.S cities normally appreciates more than 5% a year... with only 10%-20% down payment, the return is actually closer to 20% a year based on your down payment amount.
It also provides retirement for you when you needed to.
Do I need the money?
This is one of the important questions that differentiates you from a good investor.
Let's look at the question from different perspective.
If I need the money in 3 months, what will happen to me?
I need good returns in 3 months.
I need to invest in a company that can increase in price significantly within 3 months.
Here comes the problem.
If you need the money in 3 months, you will most likely lose it in 3 months.
The mindset is completely wrong.
With most stock prices being unpredictable in the short term, being able to bet on a stock and win is an unlikely event.
You are likely to pick a stock that is low quality, and is hot on the news, hoping it'll go up some more on the price.
You become the general public, and the public usually don't make money on stocks.
You're better off investing in a "Certified deposit" and make some interest if you only have 3 months.
On the other hand, if you don't need the money anytime soon, investing is for you.
Why would I say that?
The reason is because mindset is all that counts.
What do I mean by mindset?
There is a huge difference between I need the money in a few months, and I don't need the money soon.
If you don't need the money, you are relaxed, calm and thinking clearly.
However, if you need those money badly, you are likely to make poor decisions that lead to capital loss.
In some cases, hot headed people even lose the entire portfolio because they want to double down on the losses.
"Double or nothing!" seems like the famous last words for most speculators.
Do you have the personal quality to be a good investor?
Good qualities such as analytical thinking, critical thinking, and the ability to stay calm when Mr. Market is emotional.
Do you take time to analyze a company and find its intrinsic value?
Are you able to think individually and come to your own conclusion without the help of others?
Are you able to stay calm and remain composed while the people surrounding you is hyped up about the next Tesla?
If all of the qualities above describes you, you maybe able to become a good investor with years of training and experience.
If you are hot headed and easily lose your temper, buy S&P 500 instead!