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Auto Enrollment Retirement Plans are Here

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“Americans aren’t saving enough for retirement and nearly half of people 55 and older have nothing saved for when they stop working. Government Accounting Office

Nearly one in four working-age Americans aren’t saving for retirement, and those who are say they aren’t saving enough, according to a PwC analysis. Further, a majority (55%) said they either are not participating in a workplace sponsored retirement plan like a 401(k) or they don’t know if they are in a plan.

The Government Accountability Office reports that nearly half of people 55 and older have nothing saved for when they stop working, meaning there is a building retirement-savings crisis and a wave of future retirees threatens to overburden an already fragile Social Security Administration. Consequently, this can upset a balanced economy that relies on older Americans spending money in the housing and health-care sectors.

Auto-enrollment retirement plans

Auto-enrollment and auto-escalation programs implemented by a few states have proved successful at closing that gap, particularly for workers in retail and service sectors of the economy. These sectors in the past have rarely offered retirement benefits to low-income staff.

In fact, plans that used automatic enrollment had a 92% participation rate in 2020, compared with 62% for plans with voluntary enrollment, according to Vanguard’s “How America Saves 2021” research. And, employees who worked for firms with automatic enrollment saved more than 50% more for retirement in 2020 than those employed at firms with voluntary enrollment.

Further, research shows that participants enrolled in a plan with automatic increase save, on average, 20% to 30% more after three years in the plan, compared with participants in an automatic enrollment plan that does not automatically increase participants.

As a result, Congress is proposing a Federal mandatory framework for workplace retirement plans. Starting in 2023, the retirement saving plan would require employers with more than five workers to automatically enroll new hires for retirement benefits, the contributions to which would automatically increase over time.

In short, businesses would automatically deduct 6% of new workers’ income into a low-cost retirement plan and automatically escalated that contribution to 10% over time, unless workers themselves opted for something different.

It’s mandatory for employers, but not their employees, who can choose to opt out of the savings plan or change their contributions. But the default choice would always be to signup, essentially making retirement funds a statutory benefit like unemployment or workers’ compensation insurance.

Failure to provide a low-cost retirement option such as a 401(k) or individual retirement account would cost a business an excise tax liability of $10 for every worker per day of noncompliance, which would add up.

Over the last two decades, continued adoption of automatic solutions has increased employee savings and the use of professionally managed allocations. Thoughtful retirement plan designs are helping people save and invest for retirement.

References:

  1. https://news.bloomberglaw.com/daily-tax-report/retirement-savings-and-democrats-latest-tax-plans-explained
  2. https://www.pwc.com/us/en/industries/asset-wealth-management/library/retirement-in-america.html
  3. https://institutional.vanguard.com/content/dam/inst/vanguard-has/insights-pdfs/21_TL_HAS_InsightsToAction_2021.pdf

Apple Issues Emergency Security Update

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Apple released critical software patch to fix latest security vulnerability

Apple issued an emergency software update to fix a security flaw that researchers said allowed hackers and governments to invisibly spy on Apple users without so much as a click.

The “zero-click” exploit was discovered by cybersecurity research group Citizen Lab. The researchers said Israeli cybersecurity group NSO Group has been exploiting the software vulnerability since February.

To install the software fix, ensure your iPhone is plugged in or has at least 50 percent battery life. Then:

  • Go to Settings.
  • Click General.
  • Click Software Update.
  • Click Install Now to update to iOS 14.8.

Although cyber security experts contend that the retail iPhone, iPad and Mac users generally need not worry, since such attacks are highly targeted, the discovery still alarmed cyber security experts. “Users of mobile and computing platforms need to make checking for security updates a part of their weekly, if not daily routine,” wrote Steve Turner, an analyst at the tech consulting firm Forrester.

References:

  1. https://www.huffpost.com/entry/cybersecurity-apple-security-update_n_613faff0e4b0628d095f108
  2. https://support.apple.com/en-us/HT201222
  3. https://us-cert.cisa.gov/ncas/current-activity/2021/09/13/apple-releases-security-updates-address-cve-2021-30858-and-cve

Spending Less in Retirement | Kiplinger

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“Expect to spend 55%–80% of your current income annually in retirement.” Retirement Income Replacement Ratio assumes you’ll spend about 55% – 80% of the income you’re making before you retire every year in your retirement.

Effectively, spending patterns change during retirement, according to an analysis of Bureau of Labor Department. For example, starting at age 55, spending tends to increase slightly, as some younger retirees travel or take on new pursuits. In the age range when most are retired at 65+, there is a significant drop in overall spending, according to Fidelity.

This chart shows average annual household spending by age group. Spending ranges from $57,725 per year for those under age 55 to $36,717 per year for those in households over age 75.*

Specifically in retirement, spending on food, entertainment, and transportation remains relatively stable, while spending on housing tends to go down and spending on health care goes up.  According to research by Fidelity Financial Solutions, you should plan on factoring in approximately 15% of your retirement expenses will be related to health care expenses.

Lifestyle is another big factor to consider in estimating how much you will spend in retirement. Increasingly people tap into their savings to create a more active lifestyle that includes travel, adventure, and new activities.

Fidelity’s research suggests if you plan an active lifestyle in retirement, it will,ratchet up your overall retirement budget by 6 percentage points compared with a less active lifestyle.

Reference:

  1. https://www.kiplinger.com/retirement/602328/10-things-youll-spend-less-on-in-retirement
  2. https://www.fidelity.com/viewpoints/retirement/spending-in-retirement

Humble Leaders Make the Best Leaders

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“A great man is always willing to be little.” Ralph Waldo Emerson

One of the most important traits of top leaders and performers in any organization is humility, according to an article written by Jeff Hyman for Forbes. Yet, humility is not typically the first trait that comes to mind when you think about great business leaders. The idea of a humble, self-effacing leader making the best leader for an organization doesn’t come to mind.

Humility is defined as the act of being humble and as the opposite of narcissism.

“A number of research studies have concluded that humble leaders listen more effectively, inspire great teamwork and focus everyone (including themselves) on organizational goals better than leaders who don’t score high on humility,” Hyman writes.

In the book Good to Great, author Jim Collins found two common traits of CEOs in companies that successfully transitioned from average to superior market performance: “humility and an indomitable will to advance the cause of the organization”.

Further, according to research cited in the Journal of Management, “humble leaders enhance team collaboration, information sharing, and joint decision-making. After examining 105 small-to-medium-sized companies, the researchers discovered that humility and leadership had profound effects on performance. Another study that analyzed nearly 100 business leaders also showed increased team effectiveness when humility and leadership existed side-by-side.”

A recent Catalyst study shows that humility is one of four critical leadership factors for creating an environment where employees from different demographic backgrounds feel more valued and included. In the survey, they found that when employees and team members observed altruistic or selfless behavior in their leaders, they performed measuredly better. The factors are characterized by:

  1. Acts of humility, such as learning from criticism and admitting mistakes;
  2. Empowering followers to learn and develop;
  3. Acts of courage, such as taking personal risks for the greater good;
  4. Holding employees responsible for results.

“Rather than telling employees how to do their jobs better, start by asking them how you can help them do their jobs better.” Daniel Cable, author of Alive at Work

The study raises one universal implication: To promote inclusion and reap its substantial rewards, leaders should embrace a selfless, servant leadership style. Here are the practices to promote inclusivity at one company, Rockwell Automation:

  • Share your mistakes as teachable moments. When humble leaders share their mistakes, they create a culture of continuous learning and growth.
  • Engage in dialogue, not debates…to truly engage with different points of view. Inclusive and humble leaders suspend their own agendas and beliefs
  • Embrace uncertainty. When leaders humbly admit that they don’t have all the answers, they create space for others to step forward and offer solutions.
  • Role model being a “follower.” Inclusive leaders empower others to lead. 

Secret sauce of humble leaders

“Rather than calling attention to one’s self, humble leaders readily acknowledge the contributions and greatness of others. Instead of constantly showing how right they are, humble leaders look at their weaknesses and work on their areas for personal improvement.” Bold Business

Humble leaders understand that they are not the smartest person in every room and know how to get the most from their people and teams. “They encourage people to speak up, respect differences of opinion and champion the best ideas, regardless of whether they originate from a top executive or a production-line employee.”

When a leader works to harness input from everyone, other executives and line managers emulate the leader’s approach, and develop an internal culture of getting the best from every team and every individual takes root.

Additionally, when things go wrong, humble leaders admit to their mistakes and take responsibility. When things go right, they recognize their people and shine the spotlight on others.

Media and society tends to trumpet and “to be impressed by charismatic candidates with powerful personalities and a commanding presence”, according to Hyman.  Instead, Hyman’s advises managers during the hiring process to “search for quiet confidence, humility and a focus on others”.

In short, when leaders are humble, show respect, and ask how they can serve employees and team members to perform better, the outcomes can be outstanding and provide a much better recipe for success.

References:

  1. https://hbr.org/2014/05/the-best-leaders-are-humble-leaders
  2. https://www.catalyst.org/research/inclusive-leadership-the-view-from-six-countries/
  3. https://hbr.org/2018/04/how-humble-leadership-really-works
  4. https://www.forbes.com/sites/jeffhyman/2018/10/31/humility/?sh=33d404041c80
  5. https://www.boldbusiness.com/human-achievement/humility-leadership-combination

Cyber Security Best Practices

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“Good cybersecurity practices help protect both your privacy and your money.”

2020 was a record-breaking year for data breaches and cyberattacks with cyber crimes becoming an increasingly clear and present threat, both in terms of the sheer number and sophistication of attacks. 

The bad guys always appear able to devise methods to steal your personal financial information, according to The Street. It would be very prudent for investors to embrace a few recommended cybersecurity best practices:

  1. Secure Your Home Wi-Fi & Avoid Public Networks – Cybersecurity starts at home. The best practice is to encrypt your home network, which makes it more difficult for other people to monitor your activities and steal your personal information. In addition, avoid using public Wi-Fi and it may be worth investing in a virtual private network (VPN) service.
  2. Update Your Operating System – Out-of-date operating systems, browsers and antivirus software make it easier for hackers to compromise your devices and access your personal data. Keeping these up to date is a cybersecurity best practice.
  3. Use Strong Passwords & Two-Factor Authentication – Do not use the same password across multiple accounts, one compromised account can result in a major cybersecurity threat. In addition, turn on two-factor authentication, when possible, to further safeguard your accounts.
  4. Beware of Email Scams – Phishing continues to be one of the most prevalent cybersecurity threats. To avoid these scams, the best practice is to never click on suspicious links in an email, especially if you don’t recognize the sender. A good rule of thumb is to never share sensitive information over email, as it can be easily compromised. 
  5. Monitor Your Credit & Digital Footprint – One way to catch financial identity theft early is to keep a close eye on your credit score and report. An additional best practice is to monitor the internet for potentially compromising personal information. For example, you can set up a Google alert for your name, so you’ll receive an email if anything new appears in your search results.  

Investors seeking to preserve and grow their wealth can’t afford to ignore the existing threat of cyber crime.

References :

  1. https://www.thestreet.com/retirement-daily/.amp/lifestyle/5-cybersecurity-best-practices-investors-should-embrace-in-2021

Warren Buffett Defines “True Success”

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“True success’ in business and life has nothing to do with money.

In an interview, legendary investor Warren Buffett offered his definition for “true success.”

“Well, I’ve said many times that, if you get to be 65 or 70 and later, and the people that you want to have love you actually do love you, you’re a success,” Buffett said in the Yahoo Finance interview.

Buffett doesn’t believe money or power or social status makes a person successful. “I know people who have a lot of money, and they get testimonial dinners and they get hospital wings named after them. But the truth is that nobody in the world loves them,” said Buffett. “If you get to my age in life and nobody thinks well of you, I don’t care how big your bank account is, your life is a disaster.”

Buffett offers three pieces of advice for people looking to succeed in business and life.

  • Invest in yourself, and in particular, try to improve your communication skills. “If you can’t communicate to somebody, it’s like winking at a girl in the dark,” Buffett quipped.
  • Take care of your mind and body. “You get exactly one mind and one body in this world. And you can’t start taking care of it when you’re 50,” he said.
  • You should associate yourself with others who “are better than you are.” He added, “Basically, you’ll go in the direction of the people that you associate with. And you want to have the right heroes.”

Key takeaway — the amount you are loved — not your wealth or accomplishments — is the ultimate measure of success in life. “The problem with love is that it’s not for sale,” Buffett explains. “The only way to get love is to be lovable. It’s very irritating if you have a lot of money. You’d like to think you could write a check: I’ll buy a million dollars’ worth of love. But it doesn’t work that way. The more you give love away, the more you get.”

The most important lesson of a life well-lived, according to Buffett, has nothing to do with wealth and everything to do with the most powerful human emotion: love. 

“Basically, when you get to my age, you’ll really measure your success in life by how many of the people you want to have love you actually do love you.

I know many people who have a lot of money, and they get testimonial dinners and they get hospital wings named after them. But the truth is that nobody in the world loves them.

That’s the ultimate test of how you have lived your life. The trouble with love is that you can’t buy it. You can buy sex. You can buy testimonial dinners. But the only way to get love is to be lovable.

It’s very irritating if you have a lot of money. You’d like to think you could write a check: I’ll buy a million dollars’ worth of love. But it doesn’t work that way. The more you give love away, the more you get.” Warren Buffett, The Snowball: Warren Buffett and the Business of Life by Alice Schroeder

References:

  1. https://money.yahoo.com/warren-buffett-definition-success-174700744.html
  2. https://selfmadesuccess.com/warren-buffett-success-quotes/
  3. https://app.landit.com/articles/buffets-5-step-process-for-prioritizing-true-success
  4. https://www.cnbc.com/2019/02/13/billionaire-warren-buffett-says-this-is-the-only-measure-of-success-that-matters.html‬
  5. https://www.inc.com/marcel-schwantes/warren-buffett-says-it-doesnt-matter-how-rich-you-are-without-this-1-thing-your-life-is-a-disaster.html

Peter Lynch’s Investing Maxims

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Here are several investing maxims that every investor should memorize and insight repeatably to pick winning stocks, according to Peter Lynch:

  1. A good company usually increases its dividend every year.
  2. You can lose money in a very short time; it takes a long time to make money.
  3. The stock market really is not a gamble; as long as you pick good companies that you think will do well and not because of the stock’s price.
  4. You can make a lot of money in the stock market; but then again, you can lose a lot of money.
  5. You have to research the company before you put your money into it.
  6. When you invest in the stock market, you should always diversify.
  7. You should invest in several stocks becasue for every five you pick, one will do very great, one will be very bad, and three will be okay.
  8. You should never fall in love with a stock…you should always have an open mind.
  9. You shouldn’t just pick a stock: you should do your homework.
  10. Buying stocks of utility companies is good because it gives you higher dividends, but you will make more money in growth stocks.
  11. Just because a stocks goes down doesn’t mean it can’t go lower.
  12. Over the long term, it is better to buy stocks in small companies.
  13. You should not buy a stock because it is cheap, but because you know a lot about it.

Look for shares that offer “growth at a reasonable price” which helps you to avoid two common investment mistakes:

  1. Either paying too much for fast-growing companies;
  2. Or buying seemingly cheap firms without realizing that they have stopped growing.

https://youtu.be/hKdtS_0vQ48

References:

  1. https://www.safalniveshak.com/value-investing-course-peter-lynch-way
  2. https://sites.google.com/site/changechina2050/investment/learn/peter-lynch-s-investment-rules

Building Wealth

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“Building wealth has almost NOTHING to do with your income or your background. It doesn’t matter where you come from. It matters where you’re going.” Chris Hogan

In Everyday Millionaires, author Chris Hogan reveals how ordinary Americans built extraordinary wealth over the long term. In his book, he demonstrates how these ordinary American millionaires live on less than they make, avoid debt, invest, are disciplined and responsible. In short, most accumulated their wealth over the long term by being disciplined and making wise financial decisions, according to Hogan.

Having a particular mindset almost universally contributed to millionaires’ success, Hogan said. Building wealth has almost nothing to do with your income or your background, he states. “It doesn’t matter where you come from. It matters where you’re going.”

“These numbers show that becoming a millionaire doesn’t happen overnight. It’s a marathon, not a sprint. By using the basic tools of saving and investing, you can make your money work for you to build wealth.” Chris Hogan

The National Study of Millionaires is a research study conducted by Ramsey Solutions with over 10,000 U.S. millionaires to gain an understanding of personal finance behaviors and attitudes that factored into their financial success.

The research study provides the facts about what it takes to become a millionaire:

  • Consistency and discipline through investing in a company-sponsored 401(k) is how most millionaires accumulated wealth.
  • Most millionaires are self-made.
  • Many millionaires surveyed never made six figures in a year.
  • Most millionaires come from at or below middle-class income levels.
  • Most millionaires have regular jobs.

About 20 million people in the U.S. have accumulated enough assets to fit the definition of millionaire, according to a 2020 study by Credit Suisse.

According to Hogan, more than 90% of millionaires used several tools to build wealth:

  1. Take personal responsibility – around 97% of millionaires surveyed believed they were in control of their own destiny. That is much higher than the 55% of the general population who held the same opinion.
  2. Practice intentionality (make a plan) – invest in 401k p, get out of debt and stay out of debt.
  3. Spend less then the earn – 94% of millionaires live on less than they make, compared to 55% of the general population”
  4. Look for deals – 93% of millionaires use coupons, some or most of the time, 85% of millionaires use a shopping list and spend less than $200 a month in restaurants eating out
  5. Make a budget – 93% stick to a budget they create and 64% still live on a budget
  6. Consistent – 96% of millionaires do not carry a balance on their credit card”

Most wealthy people end up financially secure because they make distinctly different financial decisions throughout their life than the majority are willing to make. A few of these decisions are the manner in which they spend, save, invest and use debt.

By staying disciplined, living small by significantly spending less than you earn, and understanding how to use debt strategically, you can too build wealth. The process of building your wealth may require you to get comfortable using leverage.

The wealthy tend to use debt in a very strategic and deliberate way. They mostly use it to purchase income-producing assets and rarely to purchase liabilities like the hot new luxury car or to take the desirable exotic vacation (at least not until later in life).

References:

  1. https://www.amazon.com/Everyday-Millionaires-Ordinary-Extraordinary-Wealth_and/dp/0977489523/ref=nodl_
  2. https://cdn.ramseysolutions.net/media/company/pr/everyday-millionaires-research/National-Study-of-Millionaires.pdf
  3. https://www.ramseysolutions.com/store/books/everyday-millionaires-by-chris-hogan
  4. https://www.credit-suisse.com/about-us/en/reports-research/global-wealth-report.html
  5. https://www.cnbc.com/2021/08/24/more-than-90percent-of-millionaires-used-these-five-tools-to-build-wealth.html
  6. https://www.alex-owens.com/rich-use-debt/

Power of Compound Interest

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It is said that Albert Einstein once commented that “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

The Power of Compound Interest shows that you can put your money to work and watch it grow. The power of compounding works by growing your wealth exponentially. It adds the profit earned back to the principal amount and then reinvests the entire sum to accelerate the profit earning process.

When you earn interest on savings and returns on investments, that interest (or returns) then earns interest (or returns) on itself and this amount is compounded monthly. The higher the interest rates, the faster and the more your money grows!

The sooner you start to save, the greater the benefit of compound interest. This is one reason for the success of many investors. Anyone can take advantage of the benefits of compounding through starting a disciplined savings and investing program.

Yet, compounding interest can be good or bad depending on whether you are a saver or a borrower, respectively.

Three factors will influence the rate at which your money compounds. These factors are:

  1. The interest rate or rate of return that you make on your investment.
  2. Time left to grow or the age you start investing. The more time you give your money to build upon itself, the more it compounds.
  3. The tax rate and when you pay taxes on your interest. You will end up with more accumulated wealth if you don’t have to pay taxes, or defer paying taxes until the end of the compounding period rather than at the end of each tax year. This is why tax-deferred accounts are so important.

Finally, it’s important to resist the temptation of seeking higher interest rates or returns, because higher interest rates and returns always bring higher risk. Unless you know what you’re doing, no matter how successful you are along the way, you always want to avoid the possibility of losing money.

Benjamin Graham, known as the father of value investing, was aware of the risk of ‘chasing yield or return’ when he said that “more money has been lost reaching for a little extra return or yield than has been lost to speculating.”

References:

  1. https://www.primerica.com/public/power-compound-interest.html
  2. https://www.thebalance.com/the-power-of-compound-interest-358054

Financial Metrics for Evaluating a Stock

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“If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.” Peter Lynch

Anyone can be successful investing in the stock market. But, it does take thorough research, patience, discipline and resilience. And, it’s important to appreciate that “Behind every stock, there is a company. Find out what it’s doing”, says Peter Lynch, who managed the Fidelity Magellan Fund from 1977 to 1990 and achieved an impressive return which reportedly averaged over 20% per year.

With a long-term view to investing, Lynch would patiently wait for the company to become recognized by Wall Street for its growth, which subsequently unleashed an explosive rise in its stock price as smart money and institutional investors rush to buy stock.

In his book “One Up On Wall Street”, he reveals his principles and metrics for successful investing. Here are 11 financial metrics investors can utilize to evaluate a company’s value:

  1. Market Cap – Shows the current size and scale of the company. “If a picture is worth a thousand words, in business, so is a number.” Peter Lynch
  2. Strong Balance Sheet (Cash on Hand / Long Term Debt to Equity) – Shows how financially sound a business has become and its capacity to withstand an economic downturn. Determine if the company’s cash has been increasing and long term debt has been decreasing?
  3. Sales and Earnings Growth Rates – Shows if the business model works & current growth rate
  4. Free Cash Flow – Shows if company generating or burning through cash
  5. Returns on Capital (ROE / ROIC / ROA)- shows capital efficiency of business
  6. Margins (Gross Profit Margin / Operating Margin / Profit Margin / Net Income) – Shows current profit profile of products, spending rates, & potential for operating leverage
  7. Total Addressable Market – What is market size and long term growth potential for the company.
  8. Long Term (5+ years) Stock Performance vs. market – has the stock created or destroyed value for shareholders. “In the long run, it’s not just how much money you make that will determine your future prosperity. It’s how much of that money you put to work by saving it and investing it.” Petere Lynch
  9. Current Valuation (Price to Sales / Price to Earnings / Price to Book / Price to FCF) – How expensive or inexpensive is the stock price.or is the company reasonably priced. “If you can follow only one bit of data, follow the earnings (assuming the company in question has earnings). I subscribe to the crusty notion that sooner or later earnings make or break an investment in equities. What the stock price does today, tomorrow, or next week is only a distraction.” Peter Lynch
  10. Mission and Vision Statement – Understand why the company exist.  What is it doing. “Behind every stock is a company. Find out what it’s doing.” Peter Lynch
  11. Insider Ownership – Do insiders have skin in the game. SEC Filings. Information available on proxy statement.

Additionally, it is important to figure out:

  1. What is changing
  2. What is not changing
  3. Is there an underappreciation for either. “Your investor’s edge is not something you get from Wall Street experts. It’s something you already have. You can outperform the experts if you use your edge by investing in companies or industries you already understand.” Peter Lynch

Do that well, move on #3, you’re the best investor in the world.

As an investor, unless you understand the underlying business of a company, you will not be able to hold its stock when the price is falling. You could end up selling a great company out of fear – even though its price will recover in the future and give you great returns in the years to come. The ability to hold a good company even when its stock price is falling or undergoing a time correction – will play a crucial role in you becoming a successful investor.

In the long run, the stock price will go up only if the business of the company does well.

In Peter Lynch’s own words “I think you have to learn that there’s a company behind every stock, and that there’s only one real reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies”

If you like a stock, buy small quantity of shares. Study the company in more detail. Buy more shares if you like its business. As your understanding of the business increases, your conviction (confidence) will also increase, this will allow you to give higher allocation in your portfolio.

Categories of Stocks in the Stock Market

Peter Lynch divided different stocks into six categories

Slow Growers – Slow growers are those stocks that have a slow growth rate i.e. a low upward slope of earnings and revenue growth.These slow growers can be characterized by the size and generosity of their dividend. According to Peter Lynch, the only reason to buy these stocks are dividends.

The Stalwarts – The Stalwarts have an average growth rate as that of industry and are usually mid to large companies. They have an earnings growth between the 8-12 percent CAGR range. According to Peter Lynch, investors can get an adequate return from these stocks if they hold these stocks for a long time.

The Fast Growers – The fast growers are generally aggressive companies and they grow at an impressive rate of 15-25% per year. They are fast-growth stocks and grow at a comparatively faster rate compared to the industry average and competitors. However, Peter Lynch advises that one should be open-eyed when they own a fast grower. There is a great likelihood for the fast growers to get hammered if they run out of steam or if their growth is not sustainable.

The Cyclicals – Cyclical are stocks that grow at a very fast pace during their favorable economic cycle. The cyclical companies tend to flourish when coming out of a recession into a vigorous economy. Peter Lynch advises investors to own the cyclical only on the right part of the cycle i.e. when they are expanding. If bought at the wrong phase, it may even take them years before they perform. Timing is everything while investing in cyclical stocks.

The Turnarounds – The turnarounds are characterized as potential fatalities that have been badly hammered by the market for one or more of a variety of reasons but can make up the lost ground under the correct circumstances. Holding turnarounds can be very profitable if the management is able to turn the company as these stocks can be bought at a very low valuation by the investors. However, if the management fails to bring back the company on track, it can be very troublesome for the investors.

Asset Plays – Asset Plays are those stocks whose assets are overlooked by the market and are undervalued. These assets may be properties, equipment, or other real assets that the company is holding but which is not valued by the investors when there has been a general market downturn. The real value may be worth more than the market capitalization of the company. Peter Lynch suggests owning a few of these stocks in your portfolio as they are most likely to add a lot of value to your portfolio. However, the biggest significant factor while picking these stocks is to carefully estimate the right worth of the assets. If you are able to do it, you can pick valuable gems.

“Average investors can become experts in their own field and can pick winning stocks as effectively as Wall Street professionals by doing just a little research.” Peter Lynch

Infinity income – When your income from investments is higher than your expenses, you might be able to live off those returns for 10 years, 30 years, 50 years… or forever!

References:

  1. https://stockinvestingtoday.blog/the-investing-style-of-peter-lynch?
  2. https://www.thebalance.com/peter-lynch-s-secret-formula-for-valuing-a-stock-s-growth-3973486
  3. https://goldenfs.org/wp-content/uploads/2020/12/summary-One-Up-On-Wall-Street-Peter-Lynch-2-scaled.jpg