Designing A Portfolio

In this chapter Lynch talks about how it is important to expect a reasonable return of at least 8-10% by making an investment in index funds, ETF etc. One can get a compounded interest of at least 12% over time.

He says that "In certain years you’ll make your 30% but there will be other years when you’ll only make 2%, or perhaps you’ll lose 20. That’s just part of the schedule of things, and you have to accept it."

When discussing about how many stocks are too many in number to invest, he says that:

One can have as many stocks as long as they can understand a company better, and pass all tests of research.
He writes that if a person is looking for a ten-bagger then the more stocks they own, the more likely it is for one of them to become a ten-bagger.
He also says that owning more stocks means more flexibility as one has to rotate funds between them.
Spreading one's money among several stock categories is another way to minimize downside risks.
According to him, slow growers and stalwarts are low risk investments with a limited potential while asset plays and cyclicals have a great upside potential if one is able to make the right investment at the right time. Ten-baggers are likely to come from fast growers or turnaround. The key for smart investment is knowledgeable buying.

Lastly, he concludes by saying that the key is to re-examine one's idea of a company from time to time as a lot of things depend on it.

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