Category Archives: Building Wealth

Index Fund and Stock Investing

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“I’m extremely sceptical that anyone can do stockpicking well. The evidence is clear that simple low-cost index funds have outperformed 90 per cent actively managed funds over 10 years. A precious few stockpickers do outperform but there is no way to know in advance who they might be.” ~ Dr. Burton Malkiel

Burton Malkiel’s mission has been a multi-decades long advocate of index-based investing. In his book, A Random Walk Down Wall Street, published in 1973, he championed the premise that short run changes in stock market prices are unpredictable and that trying to beat the market is a fool’s game

Currently, index-tracking strategies account for about 40 per cent of U.S. mutual fund assets. Mr Malkiel’s advice is to ignore swings in short-term sentiment and to follow the ideas that he has supported over half a century–invest in low cost index funds. “What you shouldn’t do is panic and sell out. It is invariably a mistake, contends Malkiel. “Rather than trying to find undervalued US stocks, maybe the best solution would be to buy and hold an index comprising all the securities available for investment globally.”

Invest in index-funds (low cost), and get international exposure. The US is only one third of the world economy, and other areas are growing quickly.

Investors cannot consistently beat the market or achieve outsized returns, so invest in low-cost, tax-efficient, broad-based index funds. Not only is it simple, but it’s likely to give you the best outcome as an individual investor.

Rules to stock investing

  1. Confine stock purchases to companies that appear able to sustain above-average earnings and cash flow growth for at least five years. Growth increases, earnings, dividends, and likely the multiple the market will pay for those earnings.
  2. Never pay more for a stock than can reasonably justified by a company’s intrinsic value. Not a perfect measure, but look at how stock trades relative to earnings and cash flow growth potential. Avoid stocks with many years of high growth priced in.
  3. It helps to buy stocks with the anticipated growth. Try to be where other investors will be a few months from now. Look for companies that have strong balance sheet and strong financial growth.
  4. Trade as little as possible. Ride the winners and sell the losers. Sell before end of each calendar year any stocks on which you have a loss. Don’t have patience for losing stocks whose fundamentals have changed. Losses can help less tax burden through tax loss harvesting.

According to Dr. Malkiel, you aren’t likely to win even with these sensible rules. That said, those with a penchant for investing in individual stocks of companies, may still enjoy the game and not want to give it up.

References:

  1. https://www.ft.com/content/c67c06ba-b19c-3341-9665-eb985e3f8d02
  2. https://calvinrosser.com/notes/random-walk-down-wall-street-burton-malkiel/

Dr. Burton Gordon Malkiel, Ph.D, the Chemical Bank Chairman’s Professor of Economics at Princeton University, is responsible for a revolution in the field of investment management. His book, A Random Walk Down Wall Street, first published in 1973, used new research on asset returns and the performance of asset managers to recommend that all investors use passively managed “index” funds as the core of their investment portfolios.

Healthy Aging

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Attitude, habit and daily life choices can make a difference in your health and longevity.

Dr. Michael Roizen, M.D., founder of the Reboot Your Age program, writes in the new book The Great Age Reboot: Cracking the Longevity Code for a Younger Tomorow, 40 percent of premature deaths (premature meaning before you turn 75) are related to lifestyle choices.

According to Dr. Roizen, not enough people realize that their attitude, habits and daily life choices can make a difference in their long-term health and longevity. “The largest error is thinking that your choices do not make a difference, but making healthy choices early and consistently allows you to enjoy good health and a longer life,” says Roizen.

By the time you turn 60 years old, “75 percent of your health outcomes are determined by your habits (healthy or unhealthy) and choices”, submits Dr. Roizen.

Focus on 6 + 2

Roizen’s barometer for health success and healthy aging is “6 Normals + 2”. Here are the “Normals” and “Plus 2”, writes Jeff Haden, in Inc. Magazine.

  1. Regain and maintain normal blood pressure. The target is 110/75.
  2. Regain and maintain a healthy level of LDL cholesterol. The target is 100 mg per deciliter.
  3. Regain and maintain a healthy fasting blood glucose level. The target is 100 mg/dL or below.
  4. Maintain a healthy weight for your height. Here’s where it gets tricky. Most people use body mass index (BMI) to determine a “healthy” weight. But muscle, or lack of, matters. A 6′ tall NFL cornerback who weighs 215 pounds has a BMI of 29.2. That puts him at the high end of the “overweight” category, even though by any objective measure he’s incredibly fit. Your body fat percentage is probably a better indication of whether you’re maintaining a healthy weight.
  5. Practice ongoing stress management. Roizen’s target is to “sleep well and feel at ease in your own skin.” But don’t just think of sleep in terms of longevity; a 2018 study found that lack of sleep correlates with tension, anxiety, and lower overall mood. Sleep is good for you later, and good for you now. Aim to get 7 to 9 hours a night. For the best rest, do it on schedule — turning in and waking up at about the same times every day.
  6. Have no primary, secondary or tertiary smoke from tobacco in your body. If you aren’t familiar, tertiary smoke involves pollutants that settle indoors when tobacco is smoked. Think couches, curtains, bedspreads, etc. Your body repairs itself quickly once you quit smoking. As soon as 20 minutes after your last cigarette, your heart rate and blood pressure drop. In other words, don’t smoke. And, if feasible, try to avoid being around people who smoke.

Now for the “Plus 2.”

  1. Get a full body check up. You are what you measure, and you can’t know your numbers — and if necessary work to improve them — until you get your numbers.
  2. Keep your vaccinations up to date. Roizen recommends that everyone get an annual flu shot since it can decrease flu and lung problems as well as reduce the risk of heart attack and stroke. He also recommends people aged 50-plus get the shingles vaccine, and those 65 and over get the pneumonia vaccine.

The key is to consistently make healthy choices that help prevent chronic disease and set you up for a long life.

  • Don’t smoke, and if you do smoke, quit today.
  • Don’t drink alcohol beverages to excess, but drink plenty of water.
  • Get a good night’s sleep and practice mindfulness.
  • Eat a healthy, low refined carbohydrates, no processed food, high fiber diet.
  • Exercise 150 minutes a week.

References:

  1. https://www.inc.com/jeff-haden/a-noted-physician-says-better-health-greater-longevity-comes-down-to-rule-of-6-plus-2.html
  2. https://www.webmd.com/balance/ss/slideshow-binge-watch-risks

Stop focusing on how stressed you are and remember how blessed you are.

Invest in Stocks of Great Companies and Hold Them for the Long-Term

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Investors are far more likely to earn the best returns by investing for the long term in the stocks of great companies.

From 1926 through the end of 2021, the S&P delivered an average stock market return rate of 10.49%. That average annual return includes dividends, but not inflation. If you adjust for inflation, the average stock market return drops to 7.37%.

In the past 50 years, the S&P 500 has gained in value 40 of the past 50 years, generating an average annualized return of 9.4%.

Yet, there’s simply no reliably accurate way to predict which years will be the good years and which years will underperform or even lead to losses. But we do know that, historically, the stock market has gone up more years than it has gone down.

Despite that, only a handful of years actually came within a few percentage points of the actual average. Far more years significantly either underperformed or outperformed the average than were close to the average.

Invest in the stocks of high-quality companies, ideally regularly across every market condition, and hold those investments for many years.

The evidence is overwhelming that investors who try to time the market, who try to trade their way to higher returns with short-term moves or who try to buy and sell based on projections of short-term peaks and bottoms generally earn below-average returns, writes Motley Fool. Moreover, those strategies require substantially more time and effort. They can also result in higher fees and taxes that further reduce gains.

If you’re looking to build wealth, investing for the long-term in stocks is an excellent place to start. Investing is the best way to compound your money.

It is recommended that you invest in a market index fund or you invest in the stocks of profitable and stable companies, and hold them for the long-term. By holding your investment for the long-term — think decades — your invested capital can experience compounding growth.

The lesson for investors is don’t get sidetracked by short-term stock movements and market volatility, which tend to stir up lots of headlines and cause investor panic or fear of missing out. Reasonable and largely stable investment returns will realize you the best returns.

To get the best returns in stock investing, use the method that’s tried and true: Buy the stocks of great companies and hold them for the long-term.

Stocks do offer some limited protection against inflation, as companies can typically raise their prices to compensate for a weakening dollar and loss of purchasing power. But stocks over the long-term have not beaten real estate as a hedge against inflation.

References:

  1. https://www.fool.com/investing/how-to-invest/stocks/average-stock-market-return/
  2. Jeremy J. Siegel, Stocks for the Long Run: The Definitive Guide to Financial Market Returns & Long-Term Investment Strategies, fifth edition, New York, NY: McGraw-Hill Education, 2014.
  3. https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/prime-numbers/markets-will-be-markets-an-analysis-of-long-term-returns-from-the-s-and-p-500

Burton G. Malkiel: Index Funds and Bond Substitutes

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Burton Gordon Malkiel, the Chemical Bank Chairman’s Professor of Economics, has been responsible for a revolution in the field of investing and money management. And he’s also author of the widely influential investment book, A Random Walk Down Wall Street.

His book, A Random Walk Down Wall Street, first published in 1973, used research on asset returns and the performance of asset managers to recommend that all investors would be wise to use passively managed total market “index” funds as the core of their investment portfolios. An index fund simply buys and holds the securities available in a particular investment market.

There were no publicly available index funds when Malkiel in a Random Walk first advanced this recommendation, and investment professionals loudly decried the idea. Today, indexing has been adopted around the world.

Additionally, Malkiel believes that investors “probably needs to take a bit more risk on that stable part of the portfolio”. One asset class that he recommends, instead of low yielding bonds, is preferred stocks. There are good-quality preferred stocks, which are basically fixed-income investments. They’re not as safe as bonds. Bonds have a prior claim on corporate earnings.

According to Malkiel, investors need some part of the portfolio to be in safe, bond like assets–such as preferred stocks, or what he calls bond substitutes, for at least some part of their portfolio.

He suggest a preferred stock of like JPMorgan Chase. He doesn’t think you’re taking an enormous amount of risk. The banks now have much more capital. They are constrained by the Federal Reserve in terms of what they can do and buying back stock and increasing their dividends. And with a portfolio of diversified, high-quality preferred stocks, one can earn a 5% yield.

And if one wants to take on even a bit more risk, there are high-quality common stocks that also yield 5% or more: a stock like IBM, which has a very well-covered dividend, yields over 5%; AT&T– you can think of basically blue chips and they might play a role.

Regarding diversification, investors do need some income-producing assets in their portfolio. But his recommendation is that you think in the diversification of not simply bonds, but maybe some bond substitutes. However, there is a trade-off; there is going to be a little more risk in the portfolio. And one needs to recognize that there is not a perfect solution.

But part of the solution for an investor, especially a retired investor, must be to revisit their spending rule. If one is worried about outliving one’s money, then the spending rate has to be less. In part, it means maybe a bit more belt-tightening.

There’s no easy answer to this. Malkiel wished there were an easy answer that there’s a riskless way to solve the problem. But there isn’t. In terms of wanting more safety, one ought to be saving more before retirement, and maybe the answer is to be spending less in retirement. Thus, on a relative-value basis, things like preferred stocks, and some of the blue chips that have good dividends, and dividends that have been rising over time, ought to play at least some role in the portfolio.

In this age of “financial repression”, where safe bonds yield next to nothing, an asset allocation of 40% bonds is too high, states Malkiel. Now, of course, there’s not just one figure that fits all. For some people it might be 60-40 would be OK. But, in general, the asset allocations that Malkiel recommended have a much larger equity allocation and a much smaller bond allocation. And if you look at the 12th edition of Random Walk book, you’ll find that he has generally reduced the fixed-income allocation and increased the equity allocation–different amounts for different age groups,

References:

  1. https://dof.princeton.edu/about/clerk-faculty/emeritus/burton-gordon-malkiel
  2. https://www.morningstar.com/articles/995453/burton-malkiel-i-am-not-a-big-fan-of-esg-investing

Investment Knowledge is Essential

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Government tax laws favor investing in assets over increasing your salary. The more money you earn, the more income taxes you pay. The more assets you acquire, the less taxes you pay.

In building wealth, your first step is to get clarity about your financial and wealth building goals and your purpose for investing.

Americans who don’t have specific financial and wealth building goals are unlikely to have much success managing their money, building wealth over the long-term and achieving financial freedom. 

Americans are conditioned from an early age to equate asset diversification with investment risk mitigation.

  • Mutual funds are deemed safer than single stocks.
  • A portfolio of stocks is considered safer than real estate.
  • A real estate portfolio is thought to be safer than a single business venture.

As the proverb says, “Don’t put all your eggs in one basket.”

If you aren’t educated and don’t thoroughly understand about a specific asset class, investing heavily in that single asset can be incredibly risky. But if you take the time to learn and become knowledgeable about the sector and the specific markets and properties in which you plan to invest, you can make much of that risk disappears.

The Four Benefits of Real Financial Education

Four things happen when you focus on increasing your education and increasing your knowledge of a specific investment asset:

  1. You increase the level of control you have around the investment. More knowledge allows you to be a wise and active participant in managing the asset.
  2. Your rate of return typically increases. Wise investors use their knowledge and control to make decisions that will improve performance.
  3. Your taxes go down. What most people have learned about taxes is wrong. Taxes and tax laws are essentially a framework for what kind of money is taxed and at what rates. If you do precisely the same thing when it comes to money, you will pay the same amount of tax. But the tax law is packed with incentives the government has created to encourage people to do specific things with their capital. The more knowledge you have about those incentives, the less you’ll pay in taxes. One of the first things you’ll learn is that the government favors investing in assets over increasing a salary. The more money you earn, the more taxes you pay. The more assets you acquire, the less taxes you pay.
  4. Your risk goes down. When you combine a high level of control with higher returns and lower taxes, you will have greatly reduced the risk associated with a specific asset class. Compare your average mutual fund to a multi-family housing property that you control in a market you know like the back of your hand and that generates a high rate of return with additional tax benefits. Which one feels like the bigger risk now?

The real key to a successful retirement investment strategy—or any investment strategy—is financial education that includes proven systems for building wealth over the long term and, reducing taxes and expenses.

References:

  1. https://www.worth.com/retirement-investment-strrategy-portfolio-management-financial-education/

The 10-Year Treasury Yield: A Barometer of the Economy

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When confidence is high, the ten-year treasury bond’s price drops and yields go higher because investors feel they can find higher returning investments and do not feel they need to play it safe.

The 10-year treasury bond is a debt instrument issued by the government of the United States. As its name implies, it matures in ten years. Over the course of that time, investors holding 10-year treasury notes, earn yields. The 10-year T-notes are issued at a face value of $1,000, and a coupon specifying a certain amount of interest to be paid every six months.

The importance of the ten-year treasury bond yield goes beyond just understanding the return on investment for the security. When confidence is high, the ten-year treasury bond’s price drops and yields go higher because investors feel they can find higher returning investments and do not feel they need to play it safe.

Like other types of investments, commercial property investors follow the,10-year treasury bond yield trends because it serves as a proxy indicator for things like mortgage rates. Put another way, as the 10-year treasury bond goes, so goes mortgage rates.

The 10-year treasury bond is important to commercial property investors because it acts as a strong indicator of how the macroeconomy will move in the short-term. The 10-year note price is determined by four factors: the face value, the dollar price, interest rate, and yield, writes Forbes.

  1. Face value, also referred to as “par,” is the price the government agrees to pay out at maturity.
  2. The dollar price is the amount paid for the bond, relative to its face value.
  3. The interest rate is the amount of interest paid over the life of the note.
  4. And, the yield, is a combination of the dollar price and the interest rate.

The 10-year treasury bond’s performance, as mentioned above, is a strong indicator of how the U.S. economy is currently performing and is forecast to perform in the future. Which means, since the 10-year note is a proxy for mortgage interest rates, that’s a very important metric to commercial property investors.

After all, if mortgage interests rates rise, the long-term cost of buying commercial property goes up. Meaning the ROI might shrink. However, if the forecast is for mortgage rates to fall, then commercial property investments become more lucrative over the long-term.

Changes in the 10-year Treasury yield tell us a great deal about the economic landscape and global market sentiment, professional investors analyze patterns in 10-year Treasury yields and make predictions about how yields will move over time. Declines in the 10-year Treasury yield generally indicate caution about global economic conditions while gains signal global economic confidence.

It’s the action in the secondary market that determines the yield. This is important to note because it’s this rate that people refer to when they’re talking about Treasuries. The coupon rate, while technically the interest rate you will receive in relation to the Treasury’s face value, will likely be different from the effective yield you end up getting. If you pay less than face value, your effective rate will be higher; more and it will be lower.

Prices (and therefore effective yields) change for bonds almost constantly. That’s because a bond’s price is inversely related to yield: When demand is high and Treasury prices rise, yields fall—conversely, when demand is low Treasury prices fall and yields rise. This ebb and flow ultimately creates the Treasury pricing market as people flock to (and then from) Treasuries based on the economic environment they find themselves in.

The 10-year Treasury yield serves as a vital economic benchmark, and it influences many other interest rates. When the 10-year yield goes up, so do mortgage rates and other borrowing rates. When the 10-year yield declines and mortgage rates fall, the housing market strengthens, which in turn has a positive impact on economic growth and the economy.

Bond market volatility is usually a sign of a weakening economy. The recent U.S. Treasury yield fluctuations have given market strategists reasons to be concerned about looming economic issues. Studies and empirical evidence show a volatile U.S. Treasury note market is not good for foreign countries holding U.S. T-notes and dealing with significant debt issues, writes Bitcoin.com. That’s because when U.S. T-notes are leveraged for restructuring purposes and a resolution tool, “sudden and sweeping daily swings” can punish countries trying to use these financial vehicles for debt restructuring.

The 10-year Treasury yield also impacts the rate at which companies can borrow money. When the 10-year yield is high, companies will face more expensive borrowing costs that may reduce their ability to engage in the types of projects that lead to growth and innovation.

Higher 10-year Treasury yields should help cool down the economy and bring down decade high inflation in the long run.

The 10-year Treasury yield can also impact the stock market, with movements in yield creating volatility.

  • Rising yields may signal that investors are looking for higher return investments but could also spook investors who fear that the rising rates could draw capital away from the stock market. It can also means that borrowing is getting more expensive.
  • Falling yields suggest that corporate borrowing rates will also decline, making it easier for companies to borrow and expand, thus giving equities a boost.

All U.S. Treasury securities are regarded as relatively risk free—since they’re backed by the full faith and credit of the United States government, which has never defaulted on its debts. When investors get worried about the economy and market risk, they look for safe investments that preserve capital, and Treasuries are among the safest investments globally.

References:

  1. https://dieselcommercialgroup.com/why-the-10-year-treasury-bond-is-so-important/
  2. https://www.forbes.com/advisor/investing/10-year-treasury-yield/
  3. https://news.bitcoin.com/investors-are-running-out-of-havens-erratic-behavior-in-us-bond-markets-points-to-deep-recession-elevated-sovereign-risk/

Margin of Safety Explained

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“A margin of safety is achieved when securities are purchased at prices sufficiently below underlying value to allow for human error, bad luck, or extreme volatility in a complex, unpredictable and rapidly changing world.” ~ Seth Klarman

Margin of safety is one of the most essential principles of investing*. For investors to remove the uncertainties and reduce the risk associated with investing in the stock market, they should buy a stock when it is trading, its market price, at a deep discount to their estimate of intrinsic value.

Margin of Safety helps ensure that any uncertainties were factored into the purchase price. No matter how much time one spent evaluating investments, it is impossible to remove all of the uncertainties.

Billionaire investor Warren Buffett, CEO and Chairman, Berkshire Hathaway, compares margin of safety to driving across a bridge:

“If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety.

So, the more vulnerable the business is, assuming you still want to invest in it, the larger margin of safety you’d need.

If you’re driving a truck across a bridge that says it holds 10,000 pounds and you’ve got a 9,800 pound vehicle, if the bridge is 6 inches above the crevice it covers, you may feel okay; but if it’s over the Grand Canyon, you may feel you want a little larger margin of safety.”

Companies with high profit margins, above average returns on invested capital, growing free cash flow and strong balance sheets have their own margins of safety, which might be worth considering when one is investing in businesses.

References:

  1. https://finmasters.com/what-is-margin-of-safety/
  2. https://finance.yahoo.com/news/thoughts-margin-safety-companys-profitability-170943149.html

*All investments are the discounted present value of all future cash flow.

Hurricane Ian Updates

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Ian strengthened into a hurricane early Monday morning, with maximum sustained winds of 75 mph.

Ian is expected to strengthen rapidly today, bringing significant wind and storm surge to the Gulf of Mexico and heading towards the Gulf Coast of Florida.

Exactly where Ian will make a Florida landfall remains uncertain, according to the National Hurricane Center.

A hurricane watch has been issued for the west coast of Florida from north of Englewood to the Anclote River, including Tampa Bay.

Residents in Florida, as well as Alabama, Georgia, and the Carolinas, should be on alert and making preparations today. If you are told to evacuate, do so.

Peter Lynch’s five rules to investing

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“If I could avoid a single stock, it would be the hottest stock in the hottest industry, the one that gets the most favorable publicity, the one that every investor hears about in the car pool or on the commuter train—and succumbing to the social pressure, often buys.” Peter Lynch

Legendary American investor Peter Lynch shared five rules everyone can follow when investing in the stock market.

Within his 13-year tenure, Lynch drove the Fidelity Magellan Fund to a 2,800% gain – averaging a 29.2% annual return. It is the best 20-year return of any mutual fund in history. He is considered the greatest money manager of all time, and he beat the market for so long through buying the right stocks.

No one can promise you Lynch’s record, but you can learn a lot from him, and you don’t need a billion-dollar portfolio to follow his rules.

https://youtu.be/6oYc3RbLO3Q

Lynch’s five rules for any investor in the stock market are listed below.

1. Know what you own

The most important rule for Lynch is that investors should know and understand the company they own.

“I’m amazed at how many people that own stocks can’t tell you, in a minute or less, why they own that particular stock,” said Lynch.

Investors need to understand the company’s operations and what they offer well enough to explain it to a 10-year-old in two minutes or less. If you can’t, you will never make money.

Lynch believes that If the company is too complicated to understand and how it adds value, then don’t buy it. “I made 10 to 15 times my money in Dunkin Donuts because I could understand it,” he said.

2. Don’t invest purely on other’s opinions

People do research in all aspects of their lives, but for some reason, they fail to do the same when deciding on what stock to buy.

People research the best car to buy, look at reviews and compare specs when buying electronics, and get travel guides when travelling to new places – But they don’t do the same due diligence when buying a stock.

“So many investors get a tip on a stock travelling on the bus, and they’ll put half of their life savings in it before sunset, and they wonder why they lose money in the stock market,” Lynch said.

He added that investors should never just buy a stock because someone says it is a great buy. Do your research.

3. Focus on the company behind the stock

There is a method to the stock market, and the company behind the stock will determine where that stock goes.

“Stocks aren’t lottery tickets, there’s no luck involved. There’s a company behind every stock; if a company does well, the stock will do well – It’s not complicated,” Lynch said.

He advises that investors look at companies that have good growth prospects and is trading at a reasonable price using financial data such as:

• Balance Sheet – No story is complete without a balance sheet check. The balance sheet will tell you about the company’s financial structure, how much debt and cash it has, and how much equity its shareholders have. A company with a lot of cash is great, as it can buy more stock, make acquisitions or pay off its debt.

  • Year-by-year earnings growth
  • Price-to-earnings ratio (P/E) – relative to historical and industry averages.
  • Debt-equity ratio
  • Dividends and payout ratios
  • Price-to-free cash flow ratio
  • Return on invested capital

4. Don’t try to predict the market

Trying to time the market is a losing battle. One thing to keep in mind is that you aren’t going to invest at the bottom. Buy stocks because you want to own the business long-term, even if the share price decreases slightly after you buy.

Instead of trying to time the bottom and throwing all your money in at once, a better strategy is gradually building your stock positions over time.

This approach spreads out your investments and allows you to buy into the market at different times at varying prices that ideally balance each other out versus investing one lump sum all at once.

This way, if you’re wrong and the stock continues to fall, you’ll be able to take advantage of the new lower prices without missing out.

“Trying to time or predict the stock market is a total waste of time because no one can do it,” Lynch said.

Corollary: Buy with a Margin of Safety: No matter how careful an investor is in valuing a company, she can never eliminate the risk of being wrong. Margin of Safety is a tool for minimizing the odds of error in an investor’s favor. Margin of Safety means never overpaying for a stock, however attractive the investment opportunity may seem. It means purchasing a company at a market price 30% or more below its intrinsic value.

5. Market crashes are great opportunities

Knowing the stock market’s history is a must if you want to be successful.

What you learn from history is that the market goes down, and it goes down a lot. In 93 years, the market has had 50 declines; once every two years, the market declines by 10%. of those 50 declines, 15 have declined by 25% or more – otherwise known as a bear market – roughly every six years.

“All you need to know is that the market is going to go down sometimes, and it’s good when it happens,” Lynch said.

“For example, if you like a stock at $14 and it drops to $6 per share, that’s great. If you understand a company, look at its balance sheet, and it’s doing well, and you’re hoping to get to $22 a share with it, $14 to $22 is terrific, but $6 to $22 is exceptional,” he added.

Declines in the stock market will always happen, and you can take advantage of them if you understand the company and know what you own.

References:

  1. https://dailyinvestor.com/finance/1921/peter-lynchs-five-rules-to-investing/