Peter Lynch is a legendary investor & writer and one of the finest stock pickers in the history of investments. Even after being the most successful fund manager till date, he agrees that an individual investor has a huge advantage over mutual funds! And advice investors to invest in stocks directly for better returns. His principles stand true even in today's scenario. Here is an excerpt from Peter Lynch’s book. He elaborates human behaviour towards the stock market in a sarcastic & funny manner.

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“In the first stage of an upward market, the market has been down for a while and nobody expects it to rise again, people aren’t talking about stocks. In fact, if they turn up to ask me what I do for a living, and I answer, “I manage an equity mutual fund,”, they nod politely and wander away. When ten people would rather talk to a dentist about plaque than to the manager of an equity mutual fund about stocks, it’s likely that the market is about to turn up.”

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In stage two, after I’ve confessed what I do for a living, the new acquaintances linger a bit longer, perhaps long enough to tell me how risky the stock market is before they move over to talk to the dentist. The cocktail party is still more about plaque than about stocks. The market’s up 15 per cent from stage one, but few are paying attention”

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In stage three, the markets are up significantly from the lows. A crowd of interested parties ignores the dentist and circles around me all evening. A succession of enthusiastic individuals takes me aside to ask what stocks they should buy. Even the dentist is asking me what stocks he should buy.”

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In stage four, the markets are having a non-stop bull run. Once again they’re crowded around me, but this time it’s to tell me what stocks I should buy. Even the dentist has three or four tips, and in the next few days I look up his recommendations in the newspaper and they’ve all gone up. When the neighbours tell me what to buy and then I wish I had taken their advice, it’s a sure sign that the market has reached the top and is due for a tumble”

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If I could avoid a single stock, it would be the hottest stock in the hottest industry, the one that gets the most favorable publicity, the one that every investor hears about in the carpool or on the commuter train-and succumbing to the social pressure, often buys. Hot stocks can go up fast…but since there’s nothing but hope and thin air to support them, they fall as quickly.”

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In every part of the world, we will find such behaviour. India is not an exception to this rule. Many of us have already experienced it in the past years during the biggest crash & biggest rebound in stock prices. We have seen the gloomy faces when the stocks were falling & when it was the real-time to buy! Exactly opposite to that, we have seen extremely happy & overconfident faces when the markets were trading at all-time high levels when the markets were expensive & it was the real time of concern.

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Every human being gets influenced by mob psychology. It’s too tough to ignore the general consensus, no matter how intelligent the person is. But the key to getting success in stock markets has our own views backed by common sense & logic. Markets are not that complex, but human behaviour is. Stick to the basics. Identify a good company in a good business. Buy such stocks at rational/cheap prices. No matter what stage the market is in, such stocks will create wealth for you in the long run.