How I Invest, Part 3: Keep It Simple

(credit: Ed Schipul via Flickr)

(credit: Ed Schipul via Flickr)

Peter Lynch in his book, One Up On Wall Street: How To Use What You Already Know To Make Money In The Market, came up with 21 of what he called “Peter’s Principles,” many which I took quickly to heart.

Since I’ve been thinking about that book again, I wanted to focus today on a few of my favorites principles for investing.

What I deem is the principle of the principlesKeep it Simple Stupid (KISS) — has become my number one guiding rule to investing.

There are way too many options when it comes to where I could put my money these days, and my mind muddles quickly. Investing in what I know and like — while ignoring those investment opportunities that I don’t yet understand — has done me well.

Peter Lynch says that if you can’t explain a company (and, I add, a financial concept) with a crayon, stay away.

Although the very first stock I bought in 1989, Amgen (AMGN), went against my own best practice — I didn’t know the company, nor did I much care about its products — I was advised by an expert to do so. I know now, of course, that Amgen is a pharmaceutical company and its first major drug, Epogen, is used for the treatment of anemia associated with chronic kidney failure. Once Epogen was approved by the FDA, AMGN soared.

Although I know little about medicine or drugs (since I take none myself), I did understand that a soaring stock was a good thing.

I bought Amgen because my stock broker recommended it. Not a bad reason to buy a stock, assuming you have a good stock broker who was invested totally in your success, which I did then. That wasn’t always the case, but it sure was in those early days.

Another investing principle I adhere to is to minimize the number of companies I invest in at any one time.

Investing takes a lot of my time. Since I don’t invest in mutual funds, but rather in individual stocks, and because I want to be an involved and educated investor, I have to stay in tune with the companies I invest in, as well as the market.

The few times I got so busy in other aspects of my life that I didn’t pay enough attention, I got into trouble. The easiest way for me to know my stocks and the companies they represent is to just have a few companies represented in my portfolio.

I especially like Peter Principle #11: The best stock to buy may be the one you already own.

Since I guess I’m a little lazy at heart, once I decide to buy the stock of a particular company, and once that stock proves its worth, I do buy more. That was certainly the case with my first stock, Amgen, and is true even now.

APPL is my largest holding. I first bought Apple stock fifteen years ago and have continued to do so ever since. Although my portfolio was affected in 2012 and 2013 when Apple stock tanked, I took advantage of the dip to buy more. I’m not sorry I did.

In my next entry, I’ll talk more about the Peter Principles and how I use them to pick stocks.

[photo link

Note: the book link above is an affiliate link to Amazon. Enjoy!

About Liz Stauffer

Liz Morningstar Stauffer’s improbable journey—from a divorced mother of two at the age of 34 to a millionaire some 15 years later—has inspired her to create the blog “The Improbable Millionaire," offering tips, advice, stories and support for people on a similar journey—even if they don’t know it yet!

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