Peter Lynch wrote Alone in the stock marketWe continue with the third chapter of his book.
“We always think of the future, it can never be the same in the past, but we still prepare for ourselves. All this reminds me of the thoughts of the Mayans about the universe. They make their homes on the trees, but the second disaster is based on the fourth place. They are busy building houses that will not be damaged by the earthquake. ”
To be able to capture opportunities in the crisis environment
As can be understood from this story, what we do is to take measures by preparing scenarios about the future based on the past, but the measures we take are based on the preliminary acceptance that the past will be repeated. Because of all this, it is actually necessary to change our tendencies in general. In other words, we need to prepare for different scenarios by strengthening our psychology and creating new mental frames for ourselves. People often believe that the end of the world has come after every bad event, but throughout the history of humanity has always been seen that compliance with new environmental conditions have always been continuing. In other words, a human being is a creature that can adapt to every situation, and therefore we can use this feature in our favor. “Every crisis creates new riches” is evidence of this situation. If you can raise yourself in a way that can see opportunities in crisis environments, it is very likely that you can buy at the point where everyone is afraid. When Bitcoin fell to $ 15,000, a group of sectors thought that it was completely dead and that it was not more than fraud, while another group continued to fold and grow the balances by making purchases from those levels (a mass that makes a purchase). Educating yourself in different fields will only enable you to “not look”, but also go beyond looking.
Risk Balancing
“Unrealistic expectations can cool people from the stock market. By disappointing, you can throw the investments in your hand into the air in a wrong moment. Or worse, you can keep the shares more than necessary and damage them by waiting for some gains that will never happen.”In some periods, you can make a profit of 25 percent, while others can damage 10 percent, win and lose in the nature of the stock market. What needs to be done is to continue playing the game in a systematic, consistent and steady way. During the portfolio management, it is the most rational way to evaluate the risk correctly and turn to different stock types. The trick is to behave consciously. It is necessary to balance investments with risky and thus high earnings with risk -free and relatively lower investments. Lynch also states that young investors are more fortunate than the elderly because they have longer times in front of them so that they can try different methods and find the right shares/coins by making mistakes. Maybe you may not be rich immediately, but if you can really throw your experiences in your pocket by keeping your perspective wider, you can position yourself more accurately in the future.
Importance of portfolio diversification
Finally, in his book Peter Lynch, he has repeatedly emphasized the importance of portfolio diversification. According to him, it is a much more logical option to divide it into more than one product rather than depositing all your money in a single product, because even one of the products makes a very high profit, it will affect the general portfolio performance very positively. So how should you diversify your portfolio? First of all, as the risk rate increases, the reward rate increases. Therefore, when creating a portfolio, different categories can be determined according to risk levels. Low, medium, high and very high -risk investment instruments can be selected. Even if some of the parities suffer you, even if you increase your high or very high-risk investments, your profit level will be very high, so you can remove the damage you do more. Secondly, you should buy more than you can check. If you are constantly interested in markets and you can follow the price movements, if you can give rapid reactions to market movements, the number of products you can be slightly more. Third, portfolio diversification also includes active control. For example, when you make a very high profit from a product, you can transfer a point of your earnings to a different product or a product that you think has the potential.
