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“Ask and it will be given to you; seek and you will find; knock and the door will be opened to you. For everyone who asks receives; the one who seeks finds; and to the one who knocks, the door will be opened. Matthew 7:7-8

23 Sep 2018

STOCK MARKET--What are the most important lessons you have learned from investing in the stock market?

Matus Kubala, Investor, CFA
The most important thing I have learned about the stock market and investing, is that you need the right temperament to make it through all those ups and downs. You don’t need 130 IQ, you can sell 30 points to someone else as Warren Buffett says. But you must be emotionally stable, in other words, you must neither derive pleasure from being with the crowd or against it. You can’t get depressed when prices are going down, or ecstatic when they are rising. It’s very important to stop watching daily quotes, and instead pay attention to business fundamentals.
Let me tell you a story. In 1977, a young analyst named Peter Lynch was appointed by Fidelity Investments as the manager of their Magellan fund, which had around $18 million in assets and performed pretty poorly during its history. Being an excellent investor, Peter Lynch turned it around and generated a 29% annual return for the next 13 years, and it became one of the best performing mutual funds in United States. Now here is the interesting thing: Fidelity conducted a study of Magellan and found out, that the average investor actually lost money. How can that be? Well every time Mr. Lynch had a good year, investors piled in and assets under management increased. Every time he had bad year, investors ran for the exits and withdrew money. If they just sat on their asses and did nothing, they would have earned 29% per year. Many of these individuals had high IQs and were very successful in their respective fields. But what they didn’t have was emotional stability, they couldn’t take the wild swings that are always present in the stock market.
It’s emotion, that drives stocks to overvalued or depressed levels. If you can ignore the constantly changing prices and sit calmly, while everyone around is losing their heads, you will gain a tremendous advantage. People always say they are long-term investors, that is until prices go down

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