Learn to Earn by Peter Lynch #2

Invest for the Long Term

How to think about investing in Index Funds/ETFs

  1. If you’re a long-term investor, ignore all the bond funds and hybrid funds (those that invest in a mixture of stocks and bonds) and go for the pure stock funds/ETFs.
  2. Pick an index to follow the market returns if you want to avoid headaches and looking at quarterlies or the daily ETF holdings.
  3. Follow a star fund manager with a long term track record of beating the market rather than focusing on a particular ETF or it’s holdings. Understanding the ETF shows the past returns and understanding the fund manager shows the future returns.
  4. Over time, it’s been more profitable to invest in small companies than in large companies. So focus on a broad-based small-cap ETF for the long term.
  5. Only change ETFs or index funds if the underlying fundamentals change. Such as a change in the fund manager or management/other fee increases.

Picking your own stocks

  1. You have to know if the company is spending it’s cash wisely (High ROI = Return on Investment).
  2. You have to know how much it owes to the banks (Low Debt to Equity).
  3. You have to know if the sales are growing (Growth in Revenue).
  4. You have to know how net profits it has earned in the past years (Growing Net Income).
  5. You have to know it’s Total Addressable Market (TAM), the current competitors in its space and whether they have a competitive advantage.
  6. You have to know if the stock is selling at a fair price ( Price to Earnings / Price to Sales, but it really depends on your risk tolerance and your belief in the company to grow it’s revenue/earnings).




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Sai Penukonda

Sai Penukonda

Hi, welcome. Here I write about investing and philosophy. Let me know if you have any requests.

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