Peter Lynch's Fund Investment Law [Reproduced]

From: http://fund.cnfol.com/070316/105,1365,2799775,00.shtml Peter Lynch is a legend in the history of the global fund industry. In the past 13 years, the magelun fund, headed by him, has grown by 27 times, creating a wealth myth in the history of the Fund. Peter Lynch's stock investment philosophy has become a classic topic in the investment industry. However, most people pay little attention to the fact that, as a successful fund manager, Peter Lynch also gives great suggestions on how ordinary investors invest in funds and how to select funds.

As the development of the Chinese fund industry is booming, a large number of new investors have joined the ranks of fund investment, and there are still common misunderstandings about how investors invest in funds. Then, let's hear how the Fund Management Master recommends investors to invest in the Fund. We have summarized Peter Lynch's seven rules for fund investment, which are of great benefit to fund investors in revising their investment philosophy, correcting their investment mentality, and even learning specific investment strategies.

Fund Investment Rule 1: invest as much as possible in stock funds

Peter Lynch is a famous stock-picking fund manager. His preference for stocks has always been implemented. Lynch's first suggestion to fund investors is to invest as much as possible in stock funds.

The reason for rule 1 is that from the long-term development of the securities market, the average return rate of stock assets is much higher than that of other types of assets. Therefore, if an investor regards investment as part of the long-term financial planning of the family and pursues long-term value-added capital, he or she should try to purchase stock-type assets as much as possible. For fund investors, it is to invest as much as possible in stock funds.

Lynch's first law may be the biggest concern of many fund investors at the moment: What if the stock market suffers a sharp shock or adjustment? Lynch's opinion is that if you cannot better predict the arrival of stock market adjustments, you will hold it firmly. In the history of the United States, there have been many serious stock market disasters. Even if investors have not avoided these stock markets at one time, the long-term investment results are far stronger than the withdrawal of stock investment. The most important thing is that investors cannot fear or withdraw from stock investment due to stock market adjustments. "Only by holding stock funds for a long time can we bring benefits to investors. However, this requires a strong willpower. "

Lynch's first law is actually about investment beliefs; that is, from the perspective of investment, avoiding the risk of stocks is actually greater than the risk of holding stocks. This experience has been proved many times by the development history of the global stock market. What's more, it is in China, where both the economy and the capital market are booming. Even after several years of bear market in the middle, the result of persistent investment is far stronger than avoiding Stock market investment. From this perspective, there is no need to worry too much about the stock market's adjustment in the Rising Cycle. During the period of market volatility, investors must overcome fear and face it with a rational attitude.

Of course, this rule does not mean that investors can blindly hold stock funds. In fact, there are two prerequisites: first, this part of funds should be based on long-term capital appreciation, that is, funds that do not affect the normal financial status of individuals/families; this will not cause financial pressure that may affect investment decisions due to short-term fluctuations. On the other hand, it is also related to the selection of funds: What type of stock-based funds can insist on investment? What kinds of investment methods can be adhered? By selecting excellent stock funds and combining different investment styles, investors can actually better avoid the risk of stock market adjustment. The fund investment rules mentioned later are involved here.

Fund Investment Law 2: Forget the Bond Fund

Peter Lynch's Fund Investment Law 2: Forget about bond funds. This is the same as the investment law. Peter Lynch is known for his preference for stock investment, but this rule is not entirely caused by personal preferences.

Peter Lynch has two reasons: the reason is the same as Law 1, that is, from the perspective of capital appreciation, the income of bond assets is far inferior to that of stocks; reason 2, if investors prefer fixed income, it is better to directly purchase bonds. From the perspective of practice, the Bond Fund's income is not better than a single bond, and the purchase of a bond fund also has to pay expensive subscription and management fees. In addition, the longer the fund is held, the worse the performance of the Bond Fund relative to the bond. Peter Lynch dubbed this rule: "There is no need to pay to Ask Ma youyou to listen to the radio ".

Peter Lynch made this conclusion based on the situation in the U.S. market. For domestic investors, bond funds are still a convenient channel for ordinary investors to invest in the bond market. However, the effect of direct investment in bonds is indeed not much different from that of bond funds.

Fund Investment Rule 3: Evaluate funds by fund type

Peter Lynch's Investment Law 3: Find a fund of the same type for review. Identifying which type of investment fund is helpful for making the right investment decisions.

The reason for evaluating a fund based on the fund type is that different types of funds may behave differently in different market periods and market environments. If the fund is considered to be poor because of its recent poor performance in the market, it may miss a very good value fund. What investors often make is: "They always lose patience when they need patience most, from value-based funds to growth-based funds, in fact, the former is about to recover, while the latter may begin to decline immediately ".

Peter Lynch pointed out a basic principle for investors to analyze the comparison of fund income, that is, investors should compare the differences between fund income based on the same investment style or investment type, rather than simply looking at the return rate. There are excellent funds in various styles, while excellent funds of different styles are good candidates for investors to build investment portfolios. If a fund changes its investment style frequently, it is not a good thing for investors because of Lynch's experience, "The lack of strict investment record constraints on fund managers may bring positive results in the short term, but these are only temporary ".

From the perspective of the domestic fund industry, although the number of funds is already large, the fund types are not rich enough. From the perspective of investment style, most funds belong to the "Capital Value-added funds" with unclear styles, and the investment style lacks stability. Therefore, investors can divide fund types mainly based on the Fund's baseline asset allocation ratio, such as stock type, partial stock type, and allocation type. With the further development of the fund industry, it is increasingly important to differentiate fund types from fund investment styles. Comparing and analyzing the performance between funds based on different fund types/styles helps investors find out which funds are truly outstanding.

Fund Investment Rule 4: ignore short-term performance and choose a sustainable fund

How can we choose high-performance value-type funds, growth-type funds, or capital value-added funds? Lynch believes that most investors choose through the past performance of the fund; investors are most keen on the past performance of the Research Fund, especially in recent years. However, in Lynch's view, "these efforts are in vain ".

These investors usually choose the best-performing fund manager in the last year or the last six months on the Lipper rankings, and invest the funds in the Fund. "This is especially silly. Because the managers of these funds usually venture most of the funds into one industry or a hot type of company and have succeeded. In the next year, if the fund manager is not so lucky, it may be ranked at the end of the Lipper ranking ".

This actually tells us that the short-run champion in the fund industry may not be the long-run champion. This is true in foreign markets, and the same examples in domestic markets are not uncommon. The key lies in the reason behind the championship? Whether the performance of the fund is stable and sustainable over a longer period of time is more important.

Therefore, Peter Lynch gave the Fund Investment Rule 4: Do not spend too much time studying the past performance of the Fund, especially the performance of the recent period. "But this does not mean you should not choose a fund with long-term good performance, but it is best to hold a stable and sustainable fund ".

This actually involves an important aspect of our evaluation of the performance of the Fund: the continuity of earnings, which we have always stressed that investors should pay special attention. Especially for ordinary investors, if you cannot well analyze the real reasons behind the Fund's recent high returns, you should pay more attention to the funds that have shown a good profit continuity, this is a better reflection of fund managers' investment management capabilities than short-term earnings. If you want to invest for a long term, you must mine funds that can bring stable returns to investors. In the long run, the continuity of earnings is far more important than winning the championship. Unless you are a natural contributor to short-term transactions. Investors can refer to desheng Fund's sustainable income rating, which is designed to help investors assess the sustainability of earnings.

Fund Investment Law 5: portfolio investment, decentralized fund investment style

Peter Lynch Investment Law 5: It is suggested that investors also need to build a combination when investing in the Fund. The basic principle for building a combination is to diversify the Fund Investment Style of the combination.

Lynch believes that "as the market and environment change, fund managers or a type of fund with a certain investment style cannot maintain good performance all the time, and the principles applicable to stocks also apply to mutual funds ". Investors do not know where the next big investment opportunity is. Therefore, it is necessary to combine different types of funds.

Peter Lynch called this combination an "all-star team ". That is to say, from various styles and types of funds, we select excellent funds that meet other rules as alternative objects and then build a portfolio.

In the domestic fund industry, portfolio investment has become increasingly accepted by ordinary investors. However, many investors have two misunderstandings in Portfolio Investment: first, they are too scattered to invest funds in many funds. This is obviously incorrect. It is not that the combination is more dispersed, the better the effect is, but to be scattered and scattered: "degree" refers to moderate dispersion, and the number of base gold in the combination generally does not need to exceed 3; "youfang" refers to the excellent fund after selection, rather than the broad network.

Second, the majority of funds held in the portfolio have the same style, so that the earnings performance of each fund may be highly relevant, and in fact the effect of building the portfolio cannot be achieved.

In these two aspects, Peter Lynch's "all-star team" thinking deserves the reference of investors.

Fund Investment Rule 6: how to adjust the Fund Portfolio

How can I adjust the investment based on market changes when I have a fund portfolio? Peter Lynch proposed a simple general rule: when increasing investment in the portfolio, he chose the style of append investment that has not been doing well in the near future. Note that it is not a conversion between fund investment varieties, but an additional fund is used to adjust the configuration ratio of the combination.

Peter Lynch's experience proves that such a combination of adjustment methods can often achieve better results. The "style rotation" effect between fund performance is the basis for this adjustment method. In fact, "fund style rotation" is based on the stock market "style/sector rotation ". According to this simple principle, adjusting the combination has actually played a certain role in tracking style rotation. For a long term average, the risk of buying a falling segment is smaller than that of a rising segment.

Fund Investment Law 7: Timely investment in industry funds

At the right time, investing in industry funds is Peter Lynch's rule 7 for fund investors. Rule 7 is actually the application of rule 6, but the style distinction is more clearly reflected in the industrial distinction.

An industry fund refers to a fund of a listed company with a limited investment scope in a certain industry. The industry definition can be either a large industry category or a sub-industry. The trend of industry funds actually reflects the performance of the industry in the stock market. Peter Lynch believes, "Theoretically speaking, every industry in the stock market will have its turn to show its performance. "Therefore, Peter Lynch's simple investment law is to select an industry that temporarily lags behind the market when increasing investment in the portfolio. This principle is consistent with the style adjustment. What investors need to do is determine how the performance is temporarily lagging behind the industry of the dashboard. Industries that are already at the bottom of the recession and are beginning to show signs of recovery are the best choices if you study them more carefully.

According to the situation of the domestic fund industry, there are currently a small number of funds in the domestic industry. There are only a few funds dedicated to a specific industry category or sub-industry, and the coverage of the industry is far from the whole market. Therefore, the investment space for industry funds is still relatively limited. However, with the rapid development of the fund industry, this situation will soon change. For example, the recently released Alibaba Cloud Energy Fund is a typical industry fund. As industry funds gradually increase, fund investment strategies for industry funds will also find a useful place.

Note: Citation cited by Peter Lynch: victory over Wall Street published by Shanghai University of Finance and Economics Press