Live It Up Without Outliving Your Money!: Getting The Most From Your Investments in Retirement

Chapter 8. Value OWNING WHAT OTHERS DON'T WANT

The word crisis in Chinese is composed of two characters. The first is the symbol of danger, the second the symbol of opportunity.

—Unknown

One of the most fundamental mistakes investors make is paying high prices for popular assets. The message of this chapter is that you should invest in stocks that other investors don't want, stocks whose prices may have been going down instead of up.

It's a pity more investors don't behave like good shoppers. If they did, they'd look for opportunities to snap up good assets when they're on sale. The good news is that an important part of what investors need is always on sale.

According to the strange logic followed by so many investors, it's apparently better to pay full price for stocks, or even pay more than full price, when everybody else wants them, instead of buying them when they're on sale. This is one of the main reasons so many investors found themselves in deep trouble in 2000, 2001, and 2002. Back in the late 1990s, they bought technology and telecommunications stocks as if the prices they paid didn't matter.

To oversimplify somewhat, you can say the universe of stocks is divided into two parts: growth stocks and value stocks. When they are owned properly, value stocks pay more than growth stocks. Growth stocks represent excellent companies that inspire pride and hope. These companies tend to have good management, good products, strong financial positions, rising sales, rising profits, and ...