Part-3: The long term view:-One up on wall street book chapter 16
So let start with some knowledge
- In the stock market, If someone offers you a 25-30% return from the stock market is unrealistic. Because peter lynch is record is 29% in continuous 13 years.
- It may happen you can earn 30% but in some years you earn 2% also some years -20% also. so 10 years continuously 25-30 % return is impossible. (One Up On Wall Street: Chapter 16)
- If your long-term record is worse than a saving account, then you have to confirm your techniques of investment have flowed ( wrong).
- If you are spending time and effort picking stock, then you have to do better than the stock market index fund. for example, if an index fund gives you the 10% return, then your return is maximum than the 10% of return i.e. 15%.
- peter lynch says, ‘ diversification is good but if you buy 20-30 stock only on diversification is not good for your portfolio. so you have to analyze each and every stock individually.
- In your portfolio, the author says, ” you can buy 3 to 10 stock in your portfolio. you can do more maximum and minimum also as your wish. So keeping maximum stock means your probability of high of getting multi-bagger stock, if your analysis is good.
- peter lynch says, ” you can not be sure on a stock that will become the multi-bagger. If you think out of 10 stock 3 will be become the multi-bagger then in between that only one become the multi-bagger. So if you have maximum stock then you have a maximum probability of multi-bagger stock.
- If you have the maximum stock then you have the maximum flexibility of your portfolio. If you make money in one stock then you can easily that money put in the other stock. So easy to switch your money from one stock to another stock. (One Up On Wall Street: Chapter 16)
- if you invest in a maximum amount in one stock, then you have to wait to succeed in that stock.
- Peter Lynch says, ‘ We are talking about the 6 different categories of stock, if you invest in all this category this is also the good diversification method.” If you think this one category is given maximum return then buy that stock in the maximum amount and if you then this category of stock give the minimum return then buy them in a minimum amount, as simple as.
So let’s talk about risk and return from each and every category
Risk and return characteristics:
- Slow grower: In this category, low risk and low return concept, because in this category you can not make maximum money and low maximum money, because they grow like a walking elephant, they grow very slow.
- Stalwarts: Low-risk moderate return, in this category, if everything is right in the company, then you can make a profit of a 50% return in just one or two years. if something is wrong in the company then you can lose a minimum of 20% of all your money.
- Asset plays (Low-risk high return): If you make the right analysis of the balance sheet of the company then you can make maximum money. If the other side you are wrong then nothing is lost in your portfolio.
- Cyclicals: (Low-risk high gain and high-risk low gain) In this category anything is possible you can make money or lose money. If you are right then you become double or 10% or if you are wrong then you lose 90% value of your money.
- Fast growers and turnaround: In this, both categories have high-risk high gain. In this category, if you are wrong then you lose your all money, and if you right then you gain 10 baggers or sometimes is 15 baggers.
Some people are sell stock whenever they make some profit and keep those stock that has already lost. for this author says, ” it’s like in your garden you cut the glower and give the water to the garbage.”
Some people sell those stocks that have a loss and keep those stock that has profit in an increase in more so both the strategy is wrong. (One Up On Wall Street: Chapter 16)
If you are not concise yourself if your stock is down 25% and you are a buyer or throughout the thought is that sell stock by decreasing 25% so you can not make money in the stock market.
So stop loss is a bad thing. If you sell your stock by decreasing 10%, for this author say, ” if I am put the stop loss on taco bell company thock so this stock we have to sell 10 times but actually this stock is multi-bagger for me to not selling and putting stop loss.
So stop loss is losing strategy or don’t sell any stock because they are double or you can’t take benefit of multi-bagger so you have to hold stock on fundamental is right.
if you design your portfolio in the above thought, then your portfolio is good.