So many public companies manipulate their numbers, so many mutual funds and stockbrokers have a bunch of hidden fees. All these investment news sources preach that the stock market is going to collapse, or that you should buy this or that stock thats going to get you 6,000% gains.
Dont fall for any of it. Its all a scam.
But that doesnt mean you cant make money in the stock market.
In my years of investing, Ive probably tried every strategy there is out there. There are only about three that I really care about. This is one of them.
In fact, if I were to die tomorrow, this is the strategy I would tell my children to use to invest the money from my life insurance policy.
And the best part is youll never hear any investors talk about this strategy, because it goes against everything they believe about investing.
So here it is. This is one of the most important strategies, if not THE most important, that I could give you. This is what you should always look for when investing.
1) Find the irrational fear
In 2008, the oils markets were crashing and so everyone thought that Texas and California were about to declare bankruptcy. Everyone was talking about it on TV and in the news.
They had no idea what they were talking about.
Its not even legal for a state to declare bankruptcy; the founding fathers wrote it into the Constitution.
The only way a state can even get out of paying back a debt is if first they fired every single public servant and every public school teacher, etc.
I would go on CNBC and have these arguments with people. Id go on and say that it wasnt going to happen. That it wasnt ALLOWED to happen.
But still these guys on CNBCprofessional pundits and investors!could not wrap their minds around this.
The point is, theres always an irrational fear somewhere in the market. Its the financial version of fight or flight.
Exceptand this is the keyinvestors ALWAYS run.
Fight that fear, and youll be surrounded by solid opportunities at a huge discount.
Which brings me to
2) Find assets or stocks that are discounted because of the fear
Especially when theres no actual risk.
Heres a funny story. There was this company based in China with the stock symbol HOGS.
Then around 2007 or 2008, the swine flu became this huge health concern. All of a sudden, that HOGS stock was down 20% in ONE DAY.
All because everybody for some reason thought that the swine flu was going to affect this company that had absolutely nothing to do with it.
Heres another story.
In 2008, during that time that everyone was afraid Texas was going to go bankrupt because of the crashing oil market, I found a bunch of bonds issued by Texas towns and counties that were trading at a huge discount. They didnt even rely on the oil industry for most of their revenue. They were just being caught up in the fear.
So not only was there this irrational fear that Texas towns would go bankrupt, but it was temporarily making these specific assets that had nothing to do with this story way cheaper than they should have been.
It presented an incredible opportunity to buy.
Thats exactly the kind of thing Im looking for. Thats exactly what Im always researching. Thats what I would recommend my kids to do and thats where I think people should put their money.
3) Only put your money in investments where the price is at a huge discount to the underlying assets
In other words, if a company has $100 worth of assets, and you could buy it for $70, thats a great investment.
Lets look at those Texas bonds again. Not only were they trading at a major discount, they were also paying a huge tax advantage yield.
I want my investments to be discounted below the value of the assets they own. I want that extra margin of safety. Its a double discount on the underlying assets. I dont pay full price for my investments.
Thats how people get rich. Thats my favorite way of investing. And Im not alone. The richest investors in the world do this as well. Bill Gates. Warren Buffett. Carl Icahn. George Soros. Etc. They all do this.
This article originally appeared on The Daily Reckoning.