How to Spend More Money

The purpose of investing is to give you a chance to spend money somewhere down the road.

History has shown us that given enough time and the right choices, the stock market is an excellent vehicle for you to earn that money. In essence, if you want to increase the amount of cash you'll have available, you simply need to invest properly and wait for the market to reward you.

The rub
Investing in just any company, however, won't do. Just ask investors in Enron how they felt about being fleeced and losing every last dime. If that's not enough, talk to the former owners of WorldCom, Adelphia, Kmart or any other recent high-profile bankruptcy about what happens when a seemingly good company goes bad.

Unfortunately, you can also lose money by investing in good companies that are trading at overvalued prices. For instance, look at the tumble felt by long-term owners of these well-known large businesses over the past decade:

All the firms in that table had strong operations and proven capabilities to compete. Yet each had its stock price knocked out from under it, evaporating the wealth that shareholders thought they had at the peak.

Invest smarter
The good news is that not even the market's pessimism can keep a solid company's stock down forever. Take those same stocks listed above, but instead of looking at how far they dropped from their highs to their later lows, check out how much they've rebounded since hitting the floor:

Depending on your perspective and timeframe, investing in the same companies could have been either extremely painful or an extraordinarily lucrative experience. Of course, few of us will ever buy at the exact low price or sell precisely at the high. There's a world of difference between losing more than 90% of your money and earning a better than 200% return on your investment. Yet you theoretically could have done either in the last decade or so as a Sprint Nextel shareholder.

What it all means
If you want to improve your chances of taking home more cash than you invested, you need to figure out how to buy low and sell high. To do that, you need a rational strategy to help you determine where a stock will likely go, and why.

Fortunately, there is a time-tested investing approach that has been providing just such insight for generations. That remarkable strategy is called value investing. It's the method that such greats as Warren Buffett, John Neff, Walter Schloss, and Bill Miller have used to routinely trounce Wall Street over the years. It's also the strategy we follow at Motley Fool Inside Value. As our market-beating results indicate, value works as well today as it did for the trailblazers who came before us.

Why it works
Stocks move. Even large stocks move. With all that motion, a company's stock price can tend to get out of whack from time to time. In some cases, the cold hard cash being created by the business behind the shares hasn't changed a bit. By focusing on those operations and the real cash they can generate, value investors can learn to recognize such a situation as a buying opportunity. Conversely, if the stock is trading well above the money-making potential of the business, it's time to sell.

That's precisely the reason the Inside Value portfolio contains beaten-down giants like Fannie Mae (NYSE:FNM) and Tyco (NYSE:TYC). Their accounting scandals knocked the stuffing out of their shares, sending them into deep value territory. Yet their businesses remain profitable, and their operating competitiveness has stayed strong. As the market's paranoia passes, investors who bought these businesses when the stocks were on sale will very likely be rewarded in the form of extra cash in their pockets.

Get started now
By following the right investment strategy and giving it enough time to work its magic, you, too, can find yourself in the position of having more money to spend. The sooner you begin, the more of that precious time you'll be putting to work for you. In fact, getting started down the right path quickly is so important for your long run investing success that we'll let you get started at Inside Value absolutely risk- and cost-free for 30 days. All you need to do is click here to start the investing journey of a lifetime.

At the time of publication, Fool contributor and Inside Value team member Chuck Saletta had no ownership stake in any of the companies mentioned in this article. Fannie Mae and Tyco are Inside Value selections. The Fool has a disclosure policy.