7 things to know before investing in stocks

NDTV Profit Desk

30 Sep 2013, 02:35 PM IST

Know what you buy: Mr Lynch desired to know everything about the company and carried out his ground checks before investing in it. He also advocated investing in companies which one is familiar with or whose business is relatively easy to understand. In the words of Mr Lynch himself- "Investing without research is like playing stud poker and never looking at the cards."
Before you purchase, explain why you are buying it: The reasons for our purchase should never be based only on someone else's suggestions. In order to explain why you are buying something you need to know what you are buying.
It is futile to predict the economy and the interest rates: One needs to cut market noise and concentrate on core fundamentals when selecting investment options. Mr Lynch said, "If you spend more than 13 minutes analysing economic and market forecasts, you've wasted 10 minutes."
Good management is important, buy good businesses: Mr Lynch invested in the 'story' a company offered. What a company is going to do to deliver the desired results formed the crux of his investment decisions. If a company has a business that anyone can relate to and the management has a clear plan to deliver on expectations, then this check is cleared.
Be flexible, humble and learn from mistakes: No one is perfect and we all make mistakes. Not living in in a make-believe world that our bad investment choices will someday magically turn good is a humble start.
There is always something to worry about: Investments are subjected to various risks and market conditions. No investment plan can curtail all the risks. One can only mitigate risk to achieve higher degree of success with their investments.
Be unfazed by short-term market volatility: While picking securities, Peter Lynch stuck to what he knew or could easily understand. He mostly invested for the long run and was unfazed by short term market volatility. Buying good businesses at reasonable prices was his mantra. In order to pick good businesses he turned as many stones as possible to spot the hidden gems. Attempt to understand the Peter Lynch approach to investing. You will realize that a share is not a lottery ticket but a part-ownership to a business.

Who is Peter Lynch?

ArthaYantra provides personal finance advice online.
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