This microbook is a summary/original review based on the book: Learn to Earn: A Beginner's Guide to the Basics of Investing and Business
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Of Peter Lynch and John Rothchild’s three classic primers on investing and stock-picking, “Learn to Earn” is the one best suited for absolute beginners. If that describes you, then get ready for some investment basics!
In life, you can either work for money, or make money work for you. “Money is a great friend once you send it off to work,” say Lynch and Rothchild. “It puts extra cash in your pocket without your having to lift a finger.” So, the earlier you start investing, the better.
There are five basic ways to invest money. For starters, here are the pros and cons of the three more familiar ones:
In addition to putting your money into savings accounts or buying houses and collectibles, you can also make your money work for you by investing it into bonds and stocks. Let’s see what this means in actual fact.
Stocks are the best of all five basic types of investment. This important lesson, however, comes with an even more important caveat: stocks will earn you money only if you give them time. If you don’t, you’re forcefully turning the stock market into a casino. To get the most out of stock investing, buy stocks from respectable or promising companies using money you can afford to set aside forever. Then hold on to these stocks as long as the companies behind them have a future. After all, if you don’t sell any shares during crashes and depressions, you’ll never make a real loss; and, though they sometimes go through bad times, good companies usually come off really well in the end.
Now that you’ve learned what to invest in – stocks – it’s time to decide whether you want to pick them on your own or let somebody else do it. Many people don’t want to bother with numbers or research, so they choose the latter. That’s what mutual funds were invented for.
In essence, a mutual fund is a professionally-managed investment scheme that brings together money from many people and invests it in many companies at once. As soon as you send money to a mutual fund, you automatically become the owner not of one, but dozens of companies the fund has already purchased. Though this may sometimes earn you less, it is also less risky than owning a single stock. With the right expert at the helm of the mutual fund, you can earn a lot of money from this type of investment in the long run. However, you will also be asked to part with some of your earnings – between 0.5% and 2% annually – to recompense the money managers for their efforts.
The earliest mutual fund was started in 1822 by King William I of the Netherlands. The first mutual fund in the United States – the New York Stock Trust – launched more than 60 years later, in 1889. Today, there are more than 6,000 mutual funds in the United States. Ever since the Investment Company Act of 1940, each of them is required to reveal the contents of its portfolio, listing everything from the biggest holdings by name and how many shares it owns in each through management and extra fees to every gain and loss during the previous years. This is all done with the objective of protecting you. Even so, it doesn’t make picking the right mutual fund any easier.
“Picking the right fund isn’t any easier than picking the right auto mechanic,” Lynch and Rothchild state, noting that it would take them a whole book just to describe the different kinds of mutual funds in existence. Even so, they do share a few commonsensical bits of advice that should help you in your quest:
For Lynch and Rothchild – as the former has repeatedly made clear – the phrase “professional investing” is nothing short of an oxymoron. When it comes to investing, they claim, the only guy you should be listening to is you. “If you have time and the inclination,” they write, “you can embark on a thrilling lifetime adventure: picking your own stocks. This is a lot more work than investing in a mutual fund, but you can derive a great deal of satisfaction from picking your own stocks. Over time, perhaps you’ll do better than most of the funds.”
There are five basic methods people use to pick a stock:
Written for beginner investors of all ages – with Burton Malkiel’s “A Random Walk Down Wall Street” – Peter Lynch’s “Learn to Earn” is one of the best introductions to investing ever published. If you are a teenager who doesn’t know anything about stocks, this is the place to start your journey to becoming a successful investor.
Stock-picking is not an exact science, but it’s not pure guesswork either. Research, and use your knowledge to keep the risks to a minimum.
Peter Lynch is an American mutual fund manager, investing icon, and philanthropist. In 1977, he was named the head of the Magellan Fund. During his 13-year tenure, Lynch consistently more than doubled the S&P 500 market index, averaging almost 30% annual return,... (Read more)
John Harmon Rothchild was a freelance writer specializing in financial matters. A long-time columnist for Time and Fortune, he also served as an editor of Washington Monthly. He authored four books by hims... (Read more)
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