This Friday I will be giving away my copy of the book Wise Investing Made Simple: Larry Swedroe’s Tales to Enrich Your Future (Focused Investor)The difference in this giveaway is that it will be for subscribers only, so be sure you are subscribed by RSS or Email so you won’t miss the secret code at the bottom of the feed or within the email you get from My Two Dollars in any posts on Friday that you will need to enter. Once you have the secret code word, just shoot me an email (david AT mytwodollars.com) with “giveaway” as the subject and the secret code word in the body of the email. I will accept entries all weekend and will announce the “chosen by random” winner on Monday. As usual, I will cover shipping within the Continental U.S. and if you are an overseas reader/winner, you will have to cover shipping. OK, got it? Cool. But while I am here, I wanted to point you to a tremendous review of this book over at fellow M-Network member Paid Twice, who did a way better job reviewing the book than I could ever do. Here are a couple of snippets from her review, and you can head over there to check out the whole thing if you want more info. Thanks Paid Twice for letting me use a few pieces of this, and everyone be sure to look for the code word on Friday!
Great companies make high-return investments? No. Basically, this section talks about how risk is rewarded, and that if a company is highly regarded as a safe investment, its price is high enough to negate the fact that it has higher earnings. He uses a number of different scenarios to illustrate this including real estate investing and WalMart vs JC Penney. I thought about it in terms of Google, because I like Google and I wish I had some Google stock. However, Google is expensive now and you can expect a low rate of return for your investment because it is pretty solid and “safe”. The people who made money hand over fist on Google were early investors who took it on when it was a huge risk. With risk can come reward (but also, can come a complete loss, which is why it is risk). That doesn’t make Google a bad investment now – but it does mean I probably missed the boat on getting astronomical profits from that investment.
This was one of my favorite analogies in the entire book. The idea is, if you find a $20 bill on the ground, you pick it up, right? But you don’t then abandon your job and spend the rest of your life searching for $20 bills on the ground. An investment strategy based on finding winners other people have overlooked is like that. It is not impossible to do, but basing your entire strategy on trying to do it again and again is very hard. And once the undervalued stock is found, it is only undervalued for so long before other people realize it and get in on it too, and the market corrects itself.