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The Strategy That Made These Guys Billions

|Includes: GSI Technology, Inc. (GSIT)

When most investors see a stock plunge, their first instinct is to stay away.

But doing so may be costing you thousands of dollars because there can be opportunity in chaos.

As we've learned from many successful, well-known investors, when fundamentally sound stocks plunge, that's the time to buy.

For example, in the 1800s, Baron Rothschild told investors, "The time to buy is when there's blood in the streets, even if the blood is your own."

He knew that from experience, considering he made a small fortune buying during the panic that followed Napoleon's defeat at the Battle of Waterloo. From written accounts, Rothschild began buying stocks when they plunged to undervalued prices after Napoleon was crushed in the battle.

Or, look at Sir John Templeton, who bought on points of "excessive pessimism" and made a fortune of his own. In 1939, when Europe was in shambles, he bought 100 shares in each of the 104 companies listed on the NYSE that were selling at $1 or less.

He took the risk because he believed that World War II would pull the U.S. out of the Great Depression and companies with solid fundamentals would recover. And that's exactly what happened. Only four of the companies he bought ended up being worthless.

Then there's the $71 billion man, Warren Buffett, who tells investors two things:

One, "A climate of fear is your friend when investing; a euphoric world is your enemy." And two, "be fearful when others are greedy and greedy when others are fearful."

These wealthy investors made a great deal of money simply by buying when everyone else was too afraid.

The Cheap Investor uses that investment strategy routinely.

In January 2016, shares of GSI Technology (NASDAQ:GSIT) had been crushed, falling from a 2015 high of $5.90 to $3.43. Things looked ugly. However, in January 2016, The Cheap Investor recommended the stock at $3.88 a share.

We could tell that the company was turning around its balance sheet. Net revenues were improving, and the loss was smaller. In fact, in December 2015, GSI Technology posted a loss of $347,000, or two cents a share, as compared to a loss of $950,000, or four cents a share a year earlier. In addition, its operating loss improved from $1 million to $297,000.

Yet, investors - caught up in the fear of a falling price - missed their opportunity. Instead of researching the stock to see if it had healthy fundamentals, they ran.

This past month GSI Technology hit a six-year high of $9.60 or +150% from our recommendation. That's a pretty good profit for just 15 months.

We find opportunities just like these every month in The Cheap Investor. Don't miss our latest recommendations issued just last week.