Peter Lynch's investment annualized over 29%, analyzing his strategy in 10 steps Peter Lynch achieved an annualized return of 29% over 13 years. I spent over 100 hours studying his strategy. I will explain his unique investment strategy in 10 simple steps: Step 1: "Know what you own and why you own it." ● Behind every stock is a company, and you must understand that company to succeed. ● Lynch looks for three criteria in a winning stock: simple, boring, and consistent. ● If you can't explain what the company does in one sentence, move on. Step 2: "Earnings growth is the most important thing." ● In the long run, stock prices will inevitably follow earnings. ● He warns investors to avoid chasing high-growth industries, as these often lead to profits approaching zero due to excessive competition. Step 3: "Buy high-growth companies in boring markets." ● Lynch categorizes stocks into three types: High Growth: annual growth rate over 20% Core: large companies with an annual growth rate of 10%-20% Slow Growth: annual growth rate below 10% Step 4: "Don't spend unnecessary money." ● Peter Lynch believes that a reasonably valued company's price-to-earnings growth ratio (PEG) should be 1. PEG > 1.0 = overvalued PEG < 1.0 = undervalued ● Earnings growth is crucial, but paying too high a price for growth is the biggest mistake. Step 5: "Look for strong financial performance." ● He insists on having a solid balance sheet. ● The indicators he focuses on include: - Debt/Equity < 1 - Debt/EBITDA < 5 - Return on Equity > 15% ● After all, if you are looking at companies that won't go bankrupt, you eliminate the worst risks. Step 6: "It can always go lower." ● Looking at stock prices alone is meaningless. As long as the company is doing well, it can go higher. If the company is doing poorly, it can go to zero at any time. Step 7: "Don't try to time the market." ● No one can accurately time the market. ● If you miss the 10 best days in the market because you tried to time it, you will miss about 50% of the overall return. Step 8: "Don't try to predict the economy." ● No one can predict interest rates, inflation, economic growth, etc. ● If you spend 13 minutes thinking about the macroeconomy, you've wasted 10 minutes. ● Focus on companies, not the macroeconomy. Step 9: "Don't over-diversify." ● Diversifying beyond 15 stocks won't give you extra systemic risk protection. ● As Warren Buffett said, diversification is insurance against ignorance. Step 10: "Don't sell too early." ● There's no need to sell just because the stock price has risen too much. ● Selling a great company too early is a huge mistake. ● Remember, the stock price can only drop to 0, while the upside potential is unlimited. Note: For theoretical learning and exchange only, not for any investment advice!

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