Peter's Principles

Physician's Money Digest, November15 2003, Volume 10, Issue 21

Beating the Street

Peter Lynch has immortalized years of sound investment advice in his bestselling book, (Simon & Schuster; 1994). Physician-investors seeking a comfortable retirement might want to consider the following "Peter's Principles":

Know your stuff—Pick companies or industries you understand. This gives you an edge to outperform the experts.

  • If you don't know, don't play—Keep your money in the bank until you find attractive companies.

Treat stocks like children—Have only as many as you can handle. Five companies in your portfolio is a good number.

  • Buy successful companies—A company's success correlates 100% with the success of its stock.

Acquire patience before buying stock—A slow runner on which you spend $2000 may lose you $2000, or it may earn you $50,000 over time.

  • Be observant—Aware amateurs may spot great companies before Wall Street does, but don't invest in a small company until it turns a profit.

Build good panic control—Ignore negative predictions. Sell only when a company's fundamentals fail. If you panic easily, keep your money in the bank.

  • Look for surprises—Study 10 companies to find 1 with a silver lining; study 50 companies to find 5. Wall Street doesn't find all of the surprises.

Play the long run—Well-picked stocks constitute a portfolio that outperforms bonds or money market accounts.

  • Be prepared for declines—Stock market declines happen. Turn the next decline into your opportunity to pick up bargains.