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Learn to Earn - Peter Lynch

Basics Of Investing

1. Invest now: what are you waiting for? 

 

The right time to invest is as early as possible. The legendary investor Warren Buffett said: “I made my first investment at age eleven. I was wasting my life until then.”

 

By the time you realise you ought to be invested, you've wasted valuable time, the stocks could have been working in your favour, your money could have been piling up. Start investing as early as possible and don’t wait for your thirties, forties.

 

The average high school student is familiar with Nike, Reebok, and McDonald's. Nearly every teenager in America drinks Coke or Pepsi, but only a very few own shares in either company or even understand how to buy them. By 18, one must own shares. Financial education should be a part of the school curriculum.

 

Putting your money to work

a. Money is a great friend, once you send it off to work. Put extra cash in your pocket without you having to lift a finger. Your money earns interest.
b. If you invest your money in stocks, instead of putting it in a bank there are chances that your money will earn money while you do nothing.

 

On an average, you will double your money every seven to eight years if you leave it in stocks. Smart investors have learnt to take advantage of this. They realised that capital (money) is as important to the future as their own jobs (labour).

 

Warren Buffett saved money, put it into stock and is one of the richest men in America. One penny saved was capital earned.

 

Author has called upon three situations:

  1. A+
  2. C-
  3. F
  4.  

1. The A+ of the best situation is when you are saving and investing a portion of your pay check


2. C- situation is when you are spending the whole amount of your paycheck.


3. F Situation is where you’re paying interest to somebody else usually a credit card company. Instead of your money making money for you, the company's money is making money on you.

  • To a credit card company, you are a better investment than a stock - with an 18% interest rate generated from you.
  • When you purchase on credit without having cash you lose out. Why? Only for your need of instant gratification. Earlier, people actually waited till they had cash in their hands which is often more enjoyable than instant gratification.
  • It's ok to pay interest on a house or an apartment with an increase in value but not on cars, appliances, or closets that are decreasing in value. 
  • Debt is Saving in reverse.
  • Not only that, A country with the highest savings rate can pay for roads, phoneline, factories equipment, innovations that help companies make better and cheaper products to sell to the world. Example, Japan which revived itself after World War II because it was the nation of savers. 
  • People of Japan, China, India, Taiwan save up to 10% to 20%. But, the US saves only 4% now.

Save as much as you can, you are helping yourself and helping the country.

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Etee Bajaj

This document is curated by Etee Bajaj. A BBA (HNRS) Graduate from St. Xaviers College, she has also completed her M.Sc.(Finance) and CFA from ICFAI University, Hyderabad. She takes keen interest in stock markets and believes in Value Investing and Fundamental research and considers the storyline of a company a crucial factor in investment. Reading autobiographies of renowned people is her hobby.