The 3Cs of Investing that You Want to Avoid

The unwary investor continually passes in and out of three emotional states: concern, complacency, and capitulation.

— Peter Lynch

You may have heard about the 5Cs in Singapore. But when it comes to investing, Peter Lynch has 3Cs which you might want to avoid.

Lynch wasn’t just any investor. He became the head of the US-based Fidelity Magellan fund in 1977 and retired from that position in 1990. During his 13 year tenure, the Magellan fund delivered annualized returns of 29% per year – every $1,000 invested into his fund in 1977 would have turned into $27,200 in 1990.

So, when it comes to investing, he is one person worth listening to.


He [the investor] is concerned after the market has dropped or the economy has seemed to falter, which keeps him from buying good companies at bargain prices.

— Peter Lynch

Foolish investors may have heard that stock market volatility happens more often than we care to admit. In the graph below, my Foolish colleague Ser Jing points out that there is a fairly wide spread for the returns of the Straits Time Index (SGX: ^STI) on a year-by-year basis.

 Return distribution for Straits Times Index

Source: S&P Capital IQ

Keep this in mind: Volatility is part of the investing game, and it is with volatility that great investing opportunities will appear. So, instead of showing concern, we might want to look at volatility as an opportunity to pick up bargains instead. 


Then after he [the investor] buys at higher prices, he gets complacent because his stocks are going up. This is precisely the time he ought to be concerned enough to check the fundamentals, but he isn’t.

— Peter Lynch

To buy a company for the long term is not an invitation to completely forget about the business right after you bought it. As lifelong students of investing, Foolish investors should take time to learn about their companies over time. In my opinion, the accumulated knowledge on businesses over time could turn out to be one of our biggest advantages as long-term investors.

Bottom line: Avoid complacency, and don’t waste the opportunity to learn more about your companies.


Then finally, when his [the investor’s] stocks fall on hard times and the prices fall below what he paid, he capitulates and sells in a snit. Some have fancied themselves as “long term investors,” but only until the next big drop (or tiny gain), at which point they quickly become short-term investors and sell out for huge losses or the occasional minuscule profit.

— Peter Lynch

By now, you may have noticed that all 3Cs – concern, complacency, capitulation – have a common trait to avoid, and that is, there is a tendency to judge the health of a business based on the share price alone.

At the Fool, we are fans of studying businesses and not tickers. In judging whether a company should be sold or not, it is the state of the business that matters and not where the share price is.

To capitulate and sell because of a share price drop alone might be something you’d want to avoid.

I hope you enjoyed reading about the 3Cs to avoid. Read more about investing and get more investing tips and tricks for free by signing up here to The Motley Fool Singapore’s weekly investing newsletter, Take Stock SingaporeFool on!

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.