20 Golden rules from Peter lynch

1. Your investor’s edge is not something you get from Wall Street experts. It’s something you already have. You can outperform the experts if you use your edge by investing in companies or industries you already understand.
2. Over the past 3 decades, the stock mkt has come to be dominated by by a herd of professional investors. Contrary to popular belief, this makes it easier for the amateur investor. You can beet the market by ignoring the herd.
3. Often there is no correlation b/w success of a company’s operations and the success of its stock over a few months or even years. In the long term there is 100% correlation b/w the success of the company and the success of the stock. This disparity is the key to making money: it pays to be patient, and to own successful companies.
4. You have to know what you own, and why you own it. “This baby is a clinch to go up!” dosen’t count.
5. Long shots almost always miss the mark
6. Owning stock is like having children –don’t get involved with more then you can handle. The part time stock picker probably has time to follow 8-12 companies, and to buy and sell shares as condition warrant. There don’t have to be more than 5 companies in the portfolio at any one time.
7. If you can’t find any companies that you think are attractive, put your money in the bank until you discover some.
8. Never invest in a company without understanding its finances. The biggest losses in stocks come from companies with poor balance sheets.
9. Avoid hot stocks in hot companies. Great companies in cold, non growth industries are consistent big winners.
10. With small companies, you’re better off to wait until they turn a profit before you invest.
11. If you invest $1000 in a stock, all you can lose is $1000, but you stand to gain $10000 or even $50000 over the time you’re patient. You need to find few good stocks to make a lifetime of investing worthwhile.
12. In every industry and every region, the observant amateur can find gr8 growth companies long before the professionals have discovered them
13. A stock – mkt decline is routine as a Jan blizzard in Colorado. If you’re prepared , it can’t hurt you . A decline is a great opportunity to pick up the bargains left behind by investors who are feeling the storm in panic.
14. Every one has the brain power to make money in stocks. Not every one has the stomach. If you are susceptible of selling everything in a panic, you ought to avoid stocks and stock mutual fund altogether.
15. There is always something to worry about. Avoid weekend thinking and ignore the latest dire predictions of newscasters. Sell a stock because the company’s fundamentals deteriorate, not because the sky is falling.
16. No body can predict the interest rates, the future direction of the economy, or the stock market. Dismiss all such forecast and concentrate on what‘s actually happening to the companies in which you’ve invested.
17. If you study 10 companies, you will find 1 for which the story is better than expected. If you study 50, you’ll find 5 . There are always pleasant surprises to be found in the stock market companies whose achievements are being overlooked on Wall Street.
18. If you don’t study any companies you have the same chance of success buying stocks as you do in a poker game if you bet without looking at your cards.
19. Time is on your side when you own shares of superior companies. You can afford to be patient –even if you are missed Wal- Mart in the first 5 years, it was a gr8 stock to own in the next 5 years. Time is against you when you own options
20. In the long run, a portfolio of well chosen stocks will always outperform a portfolio of bonds or a money market account. In the long run, a portfolio of poorly chosen stocks won’t outperform the money left under the mattress.

"Contra Investing"

Contra Funds has its genesis in the popular saying "when others zig you zag".

- It basically takes contrasting positions and consciously does not flow with tide at all times.

- Let me tell you a story.

- There was a boy Raju travelling with his family. They met with an accident in which he lost all his family   members. He became orphaned. His relatives turned away from him.

- Raman a friend of Raju's father who knew the family was very fond of Raju.He liked him because he was cultured, well mannered, very studious and always a topper in his class. He knew Raju had the talent to became a very successful person.

- He therefore without any hesitation took Raju under his shelter. He nurtured and educated him sparing no efforts. As expected Raju grew up into a very smart, intelligent and successful person.

- When Raman started aging and becoming weak, it was Raju who stood by him as his shield. He ensured that Raman had all the comforts that he needed.

- From a "contra" perspective one can say that the bet Raman took on Raju was a contra bet. He backed him at a time when others were avoiding him. He did it because he had a clearer understanding of the intrinsic qualities of the boys. He always knew it would be worth his while to help Raju in the long term.

- Similarly a "Contra" fund manager looks for a bad news and searches for opportunities within the bad news. He identifies  companies being shunned by investors due to overall mood and picks them into his "Contra" basket.

- And as we saw in the case of Raju, such companies also may take some time to bounce back. Therefore as an investor one needs to have patience when investing in a contra theme.

This is what contra funds are. Remember, it takes patience for the investment to play out.