This is how Peter Lynch sees portfolio management:

（一）25%Is the annual rate of return on investment high?

I have heard some people say that they would be more satisfied if they could get an annual investment return of 25% to 30% from the stock market. Satisfied? With an annual return of 25% to 30%, these people can get rich as quickly as the Japanese and the The Bass Brothers brothers of the Texas oil tycoon family, and will soon own half of the wealth of the entire United States. Even the investment tycoons who were able to manipulate the entire Wall Street in the 1920s could not guarantee themselves an annual return of 30% forever.

You can get 30% in some years.Return on investment, but in other years you may only have 2%The return on investment may even lose 20%.This is one of the basic laws of the investment world and you have no choice but to accept it.

Since an investment return of 25% to 30% is a fundamentally unrealistic investment goal, what should be a more realistic rate of return on investment?

First of all, your rate of return on stocks should be higher than that on bonds.If you review your long-term investment record and find that your stock return is only 4%, 5% or 6%, or even can't exceed the bank savings rate, then you should understand that your investment skills are really bad. There must be a lot of flaws and problems.

By the way, when you calculate your stock investment performance, don't forget to include the following fees in the investment cost: the cost of subscribing to investment newsletters and financial magazines, transaction commissions and fees, attending investment seminars, and long-distance calls to brokers.

The long-term average return on investment of general stocks is 9%.～10%This is also the average return on investment of the stock index in historyYou can get an average return of 10% by investing in commission-free index mutual funds. This index fund buys all 500 stocks in the S & P 500 and automatically replicates the entire index, and you can achieve an average return of 10% without doing any research or paying extra fees. This average return on investment is a benchmark for measuring your own investment performance, as well as for measuring the performance of stock investment funds such as Magellan funds.

Although there are so many convenient investment options such as index funds and stock investment funds, amateur investors still insist on their own stock selection. If you want to prove that it's worth your time and effort to choose your own stocks.In the long run, you should get it from stock investment.12%～15%The return on compound interest investment must be calculated by deducting all costs and commissions, plus all dividends and other dividends.

In stock investment, the return of long-term investors who have been holding stocks is far higher than that of short-term investors who buy and sell stocks frequently.For small investors, buying and selling stocks frequently has to pay a lot of transaction costs.

Therefore, if an amateur investor changes hands of all the stocks in his portfolio every year, it means that he has lost money from the beginning. The more frequently investors trade, the more difficult it is for their investment returns to exceed those of index funds or other investment funds.

Despite all these potential investment risks, if the average return on the stock market over 10 years is 10%, and if an amateur investor achieves an annual return of 15% in that 10 years, then he will accumulate much more wealth in 10 years than the stock market average. If his initial investment is $10, 000, his final accumulated wealth will be as high as $40455 at a 15 per cent return on investment over a decade, and only $25937 at an average market return of 10 per cent.

(2) should we put the eggs in one basket?

How do you construct a stock portfolio with a 12%-15% return? How many stocks should you hold? I can tell you a principle right away: if you can control yourself, don't hold 1400 stocks like me, but this is my problem as a cash-rich Magellan fund manager. not your problem as a small amateur investor.

You don't have to worry like me about the following restrictions: buying a stock cannot exceed the 5 per cent limit on the total assets of the fund, holding a stock cannot exceed the 10 per cent limit on the total shares of the company, and the fund's assets of up to $9.2 billion will be difficult to manage.

There has been a debate about diversification and concentration of investment between the two groups of investment advisers for a long time. The view of the school represented by Gerald Loeb is "put all the eggs in one basket", and the view of the school represented by Andrew Tobias is "do not put all eggs in one basket, because there may be loopholes in this basket".

If the basket I hold is Walmart Inc's stock, then I will be very happy to put all my eggs, that is, all my capital, in it, and if my basket is Continental Bank Corporation (Continental Illinois)I don't want to risk putting all my eggs in this stupid basket.

If I have five baskets, namely Shoney basket, The Limited, Pep Boys, Taco Bell and SCI, I can affirm that it would be a good idea to put eggs in each of these five baskets, but if this diversified portfolio includes a stock such as Avon or Johns-Manville, then I would rather put all my eggs in a very strong basket like Dunkin?Donuts stock. The key to investment is not to determine the reasonable number of shares held, but to investigate and determine the quality of each stock one by one.

In my personal opinion, investors should hold as many stocks as possible that meet the following conditions:

① your personal work or life experience gives you a deep understanding of the company.

② passes a series of standards and you will find that the company has exciting prospects.

Through careful research, you find that there may be only one stock that meets these conditions, maybe there will be about a dozen stocks, and the number of stocks does not matter.The key is the quality.

It is also possible that you decide to focus on distressed reverse or hidden asset stocks, from which you can choose to invest; maybe you happen to have a particularly in-depth understanding of a distressed reverse or hidden asset stock. Then you can only focus on this one stock.

It's no good to diversify your portfolio into stocks of companies you don't know, and the consequences of stupid diversification for small investors are terrible and terrible.

Although you should concentrate your investment, it is not safe to bet all your money on one stock, because although you have done your best to do research and analysis, but the company you choose to own is likely to suffer a severe blow that you never expected.I think for a small portfolio to hold3～10Only stocks are more appropriate.This proper diversification may bring you the following benefits.

（1(if you are looking for 10Multiple shares, so the more stocks you hold, there will be a 10% in these stocks.The more likely it is to double shares.Among several fast-growing companies with good prospects, which company has the best development and the fastest growth is often unexpected.

（2The more stocks you hold, the more flexibility you have to adjust your capital allocation between different stocks, which is an important part of my investment strategy.

Some people attribute my success to my specialization in growth stocks, but that's only half true. My investment in growth stocks has never exceeded 30% to 40% of the fund's assets, and most of the rest of the fund's assets have been diversified into stocks of other types of companies that I have described in this book.

I usually put10%～20%10% of fund assets are invested in stocks of stable growth companies, 10%～20%Ten percent of the fund assets are invested in the stocks of cyclical companies, and the rest of the fund assets are invested in the stocks of troubled reverse transition companies.

I regularly monitor and track the development of these stocks. I have been looking for stocks with investment value among all types of stocks: if I find that there are more investment opportunities in distressed reverse companies than in fast-growing companies, then I will increase the proportion of distressed reverse companies in the portfolio.

If the stock that I used to be a second-rate investment opportunity greatly increases my confidence due to the new bullish situation, then I will increase the investment proportion of this stock to the level of my main shareholding.

(3) can the sell order stop the loss?

If you can't convince yourself to insist, "when my stock falls by 25%,"When I buy more, I will buy the right belief and quit forever when my stock falls by 25%.I will sell the destructive false belief of "Then you will never get a decent return on your stock investment.

I've always hated stop-loss orders (stop order), and you should know very well by now. A stop-loss order is a trading order that sells automatically when the stock price reaches a predetermined price. Generally, the pre-determined stop-loss price is 10% lower than the purchase price. Of course, if a stop-loss order is set, you can limit the investment loss to 10%, but today's stock market is so volatile that a stock almost often falls by 10%.

The idea that a stop-loss order can automatically sell all the shares when the share price falls by 10% to avoid a bigger loss is inconceivable, and the share price may have fallen by more than 10% by the time the order was issued. Stop-loss orders simply do nothing to protect investors from losses, but to turn current paper losses into a real loss that has already occurred.

If you set a stop-loss order on Taco Bell stock, you can really limit the investment loss to10%Within, but will miss the increase of 10%.Times the investmentOpportunity.

If you can name a portfolio with a 10% stop-loss order, I can also name a portfolio that is destined to lose exactly 10%. When you set a 10% stop-loss order, you are actually admitting that you will sell the stock in the future at a price lower than the current intrinsic value of the stock.

When the stock price falls to the stop-loss level, it is also incredible that investors who claim to be very cautious sell all the shares, but then the stock will rebound strongly. When the stock price falls, it is impossible for investors to protect themselves by setting a stop-loss order to make the loss smaller, nor can they rely on setting an artificial profit target to ensure their profit when the stock price rises.

If I believed in the idea of "double the stock price and sell it", I wouldn't get many times the profit from any stock, and I wouldn't have the opportunity to write this book for you.

Stick to stocks-as long as the company's prospects remain the same or better-you'll get a huge return on your investment that you'll be surprised by in a few years.