Peter Lynch: How to Invest Small Amounts of Money

I’m going to let you in on a secret during this video. Everyone is getting it completely wrong when it comes to investing. Conventional investing wisdom states that the average person doesn’t stand a chance against the pros on wall street. However, believe it or not, the individual investor has a massive advantage over professional investors. But please don’t take my word from it. This is coming from legendary investor Peter Lynch. Make sure to stick around to the end of this video because we are going to cover the 4 most important pieces of advice from Lynch on how he recommends people invest small sums of money. Let’s get into it.

According to Peter Lynch, the cardinal rule of investing is “know what you own and why you own it. This means that if you own a stock, you should have a deep understanding of the company, its products, and what separates the business from its competition. Additionally, you should be able to explain to a kid why you own the stock. I remember the first time I ever heard this advice from Lynch. I was a college student and had just finished his must read book, One Up on Wall Street. In this book, Peter Lynch talked about how even professional investors often buy stocks without really understanding the business or being able to explain why it makes sense to own it. At first, I thought there was absolutely no way this could be true. Professional investors are some of the most intelligent, well educated people on the planet. I believed professional investors could never do something so foolish. Well, then I joined the industry myself as one of those professional investors and saw for myself just how true Lynch’s words were.

For background, professional investors have their investment performance evaluated relative to an index, often the S&P 500. The S&P 500 index consists of the roughly 500 largest companies in the US economy. The index is weighted based on the market cap of each company, with the larger market cap companies accounting for a larger percentage of the index. That means that the larger a company is, the more its stock performance drives returns for the entire index. Let’s use Nvidia as an example. Nvidia has a current market cap of 1 trillion dollars and accounts for roughly 3% of the entire S&P 500 index. While 3% may not sound like a lot, one company making up 3% of the value of an index with 500 companies is truly massive.

Nvida stock has been on a tear recently, up 200% over the past year as of the making of this video. Nvidia is a technology company known for designing and manufacturing graphics processing units. The average portfolio manager on wall street is likely in their 40s or 50s with a finance background. Put another way, they aren’t geniuses when it comes to cutting edge technology

If a professional fund manager followed Peter Lynch’s advice of only investing in companies they understand, there is a good chance they wouldn’t have owned Nvidia stock. Investors in this professional investors fund would likely be upset at him for missing out on Nvidia. Professional investors are human. They have a mortgage payment every month and bills to pay. They want to keep their job and to do that they have to keep their investors happy. This often results in professional investors owning stocks they don’t understand and owning them for no reason other than to make themselves look better to current and potential investors in their fund.

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[artistiya]

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[lawerencemiller]

In these uncertain times, it's more important than ever to have a solid understanding of how to manage your finances, invest wisely and navigate economic downturns. But my primary concern is how to grow my reserve of $240k which has been sitting duck since forever with zero to no gains, sure I'm all in on the long term game, but with my savings are lying waste to inflation and my portfolio losing gains everyday, I need a remedy.

[RoseBalerus]

Managing money is different from accumulating wealth, and the lack of investment education in schools may explain why people struggle to maintain their financial gains. The examples you provided are relevant, and I personally benefited from the market crisis, as I embrace challenging times while others tend to avoid them. Well, at least my advisor does too, jokingly.

[Marynando]

I'm under pressure to grow my reserve that currently holds about $200k. I'm down by 20% already following the crash and I fear I could lose more.

[bennetthenry]

I blame the Fed for global economic crisis, they can print credit as long as someone will borrow it into existence, but production cannot be printed. Right or wrong?

[bernardlynch]

It is always good to have a financial plan. I work with a professional planner and fixed-income strategist in NY. The fixed income portion of your portfolio won't simply serve as a buffer to the volatility of the equity portion of your portfolio, but will provide legitimate income.

[VanPeltufcyde]

This analysis was so well done and amazing advice! Thank you. What's best options for optimising a $250, 000 portfolio and diversification insights?

[CharetteRose]

Stocks are falling and bond yields are rising, but markets still don’t seem convinced the Federal Reserve will pursue plans to keep increasing interest rates until inflation is under control. I'm still at a crossroads deciding if to liquidate my $117k stocck portfolio, what’s the best way to take advantage of this bear market?

[debwes]

Amazing video! But I do have a question. How would you advise someone looking to invest less than $50, 000 in the stock market for starters? I actually plan to observe pro stock traders and adopt their method of trading. What do you think about this strategy?

[loisfelch-olwu]

The wisest thought that is in everyone's minds today is to invest in different income flows that do not depend on the government, especially with the current economic crisis around the world. This is still a good time to invest in gold, silver and digital currencies (BTC, ETH.... stock, silver and gold)

[jimmydan]

I began my investment journey at the age of 33, primarily through hard work and dedication. Now at the age of 38, I am thrilled to share that my passive income exceeded $100k in a single month for the first time. This success reinforces the importance of the advice mentioned earlier. It is not about achieving quick wealth, but rather ensuring long-term financial prosperity.

[KevinEvans-mqob]

Well, I feel investors should be focusing on under-the-radar stocks, and considering the current rollercoaster nature of the stock market, Because 35% of my $270k portfolio comprises plummeting stocks that were once revered and I don't know where to go here out of devastation.

[MariannThygesen]

Nice video. I really can’t express how grateful I am to this channel for recommending and bringing Doris Janette Maule on the show, her services are exceptional and I've been earning greatly from investing with her

[gsssbsbjdkfdmjd]

The investment you choose isn't right or wrong, just depends on the kind of business person you are or simply the kind of person you are. However, the end game is investing money long term creates wealth every time. Just pick what you like and understand, invest and it will pay off. A lifetime of investing for 5 mil is not hard to accrue.

[JoseGuillermo]

Our government is putting so many families in difficult situations, you have helped me and my family a lot, Ms. Olivia Andrew, imagine investing $1, 000 and receiving $5, 200 in a few days.

[fredrickalfarez]

Whenever I see videos speaking about money. I always wish people knew what I knew about money and how it’s not so difficult to hit your financial target if you know the right steps to take. Honestly, I see Not making upto a million before retirement as an unfulfilled retirement. I’m 54 and my wife is 50 . We are both retired with over $3million in net worth and no debts. Currently living smart and frugal with our money. No longer putting blames on the FED for our misfortunes. Saving and investing lifestyle in the stock market made it possible for us this early. Even till now, we earn weekly.

[DavidVelasquez]

Stocks are pretty unstable at the moment, but if you do the right math, you should be just fine. Bloomberg and other finance media have been recording cases of folks gaining over 250k just in a matter of weeks/couple months, so I think there are alot of wealth transfer in this downtime if you know where to look.

[CullenClark-]

Yeah !! With the current problem around the world today I think it's best everyone invest more in digital asset than Saving in banks and real estate . Just my thoughts

[calebsarah]

Impressive video, I've been making passive income monthly from crypto for over a year tho' I prefer trading with the help of a professional broker Nora Hendrix because she saves me time and reduces the risk of losing funds in trading as we all know how volatile the market is.

[InvestorCenter]

I accidentally did a “count up” instead of a “count down”. Hope it wasn’t too distracting 😊