Peter Lynch: Buying on stocks when the market is crashing

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The stock market will always be volatile, accept it! Long-term, earnings will go up and that is actually what you are investing in – you are owning a business. At the moment the stock market crash has recovered a bit, but investing is always the same and you need to know how to behave! Here is a great video from Peter Lynch telling all you need to know about investing and how to invest when stocks crash.

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Peter Lynch: Buying Stocks When The Market Falls 10%


Good day fellow investors. I have found an amazing video by Peter Lynch that explains everything you need to know about investing. So, enjoy it.

Are you concerned about the volatility in the financial markets today? Do you think something needs to be done to reduce it?

I love volatility. I think I remember when, in 1972, the market went from down dramatically and Taco Bell went from 14 to 1. They had no debt. They never had a restaurant close. And I started buying at 7 but I kept on to it and went to 1 and was the largest position in Magellan in 1978. It was bought out from buy $42 by Pepsi Cola, I think would have gone to 400 if they buy it out. I think volatility is terrific. I think it is very, I think these calls are very important. I don't think the market going up 80 points one day and down at the next is a good thing for the public. I think that's not a very good thing. But I think all these callars and all these other things to keep the volatility down each day is important. But the markets gonna go up and down of the human nature hasn't changed a lot in 25,000 years. And some of them will come out of left field and the market will go down or market will go up. So I volatility will occur and markets will continue to have these ups and downs.

I think that's a great opportunity. If people can understand what they own. If they don't understand they only can own mutual funds, trying to figure out the mutual funds they own and keep adding to it. Over basic corporate profits have grown about 8% a year historically. So corporate profits double about every nine years, the stock market audit double about every nine years. So I think the next marks about 3800 today 3700. I'm pretty convinced the next 3800 points will be up, won't be down the next 500 points and 600 points, I know which way they're go. So the market ought to double in the next eight or nine years, or double again and eight, nine years after that. Because profits go up 8% a year, and stocks will fall. That's all restored. But you should study history and history. The important thing you learn from what you're learning history is the market goes down. It goes down a lot.

The math is simple. There's been 93 years a century, this is easy to do. The markets had 50 declines of 10% or more. So 50 declines in 93 years, but once every two years, the market falls 10%. We call that a correction. That means that's a euphemism for losing a lot of money rapidly, but we call it a correction. And so 50 declines and 93 years about once every two years of market falls 10% of those 50 declines. 15 have been 25% or more. That's known as a bear market. We've had 15 declines in 93 years. So every 6 years, the markets gonna have a 25% decline. That's all you need to know. You need to know the markets gonna go down sometime. If you're not ready for that, you should own stocks, and it's good when it happens.

If you like a stock of 14, it goes to six. That's great. You understand the company look at the balance sheet, they're doing fine. You're hoping to get to 22 with it. 14 to 22 is terrific. 6 to 22 is exceptional. So you take advantage of these declines, they're going to happen, no one knows when they're gonna happen. It will be fair people tell you about after the fact that they predicted it, but they predicted it 53 times. And so you can take advantage of the faults in the market. If you understand what you own is, a lot of times people buy on the basis, the stock has gone down this much. You know, how much further gonna go down? I remember when Polaroid went from 130 to 100. People said, here's this great company, great record, but if it gets below 100 you know, just buy every share, you know, and it did get below 100 people bought on net basis. And look, it's got 135/100 it's not 95 what a buy within a year was 18. And this is kind of with no debt. I mean, as a company, we're just so overpriced. They went down.

I did the same thing in my first or second year at Fidelity. Kaiser industries have gone from 26,000 a year to 16. I said, how much lower can it go? It's 16. So I think we bought one of the biggest blocks ever on the New York on the American stock exchange of Kaiser Industries at 14. I said, you know, it's gone from 26 to 16 hours work, I go, what can I call my mother and said, Mom, you're going to look at the skies or industries. I mean, how much lower can it go? It's gone from 26 to 10. Well, it went to 6 and went to 5 and went to 4 and went to 3. And I unfortunately happen rapidly. I would probably be still caddying or be working at the stop and shop but I it happened fast was able to say it was compressed. And at three I figured out you know, there's something very wrong here because Kaiser industries owns 40% of Kaiser steel. They own 40% of Kaiser Aluminium, they own 32% of Kaiser cement. They own Kaiser Broadcast and then Kaiser Santa gravel, Kaiser engineers, they own Jeep, they own business after business, and they had no debt. Now, I learned this very early this might be a breakthrough for some people. It's very hard. Hard to go bankrupt if you don't have any debt. It's tricky. Some people got approached that it's a real achievement, that they had no debt. And the whole company at 3 was telling it about 75 million. That point it was equal to buying one Boeing 747. I said, there's something wrong with this company selling for 75 million. I was a little premature at 16. But I said everything's fine. And eventually this workout. And they what they do is they gave away all their shares to the shareholders a pass on shares, that guy's meant to pass on chairs and cause aluminium, they pass out the public shares and because of steel, they sold all the other businesses and you get about $50 a share. And but if you didn't understand the company, if you're just buying on the fact that stock had gone from 26 to 16, and then it goes to 10. What would you do one went to nine, what would you do one went to eight, what would you do if it went to seven.

This is the problem that people have is they sell stocks because they didn't know why they bought it then went down and they don't know what to do now. You flip a coin. You walk around the block, you know, what do you do? It's psychiatry, seven work so far, I've never seen them running in beside the psychological psychiatry fund I've never seen with the, with the SEC to make it through as a mutual fund. So they haven't seen the help. I've tried prayer that hasn't worked the the. So if you don't understand the company have this problem when they go down. Eventually they always come back. This one is this one doesn't work either. People think RCA just about get back to its 1929 high when General Electric took it over. A lot of double knits never came back Marlowe's beauties, floppy disks Western Union. The list goes on and on. People saying it'll come back. Well, it doesn't have to come back. Here's another one you hear all the time. It's $3. How much I lose. I've had people call me up saying I'm thinking of buying the stock at three. How much do I lose? Well, again, you may need a piece of paper for this but if you put if you put $20,000 in stock at 50 or your neighbour put 20,000 at fault at 50 into the stock, and you put $20,000 in three, and it goes to zero, you lose exactly the same amount of money, everything. If people say it's three, how much can I lose? Well, if you put a million dollars on it, you can lose a million dollars.

Just the fact that this is this may be a reason to research based on the fact of stock is three down from 100. doesn't mean you should buy it. And in fact, short sellers people that really make money in stocks, they don't short Walmart, they're not sure Home Depot, they're not sure the great companies Johnson Johnson, they short stocks down from 80 to seven. They'd like to short it at 16 or 22. But they figured out at seven, this company is going to go to zero. They just haven't blown taps on this thing yet. It's going to zero. And if they're selling short seven, they're selling short at six at five at four at three at two at one quarter. And you notice something short you need a buyer sometimes to buy the damn thing and you want to who's buying this thing? It's these people saying it's three how much lower can it go?

Thank you Peter. If you enjoyed his mindset and how we structured it when it comes to investing, please check my free stock market course investing course where we are summarising Peter Lynch's book. Also subscribe to this channel. And that's it click like if you enjoyed this thank you and I'll see you in the next video.