My No. 1 Top Holding

So, what's your No. 1 top holding? When I tell you mine, you may be surprised.

For one thing, it's not a small cap. It's no story stock, either. It's a big, faceless corporation with a household name.

And this should surprise you why?
Because I've banged the table on small caps for years -- how you could buy Yahoo! or eBay (Nasdaq: EBAY) now that they're huge and everybody already owns them. The real money, however, is made when you buy companies like these when they are small.

And that's just partly because their explosive growth phases are ahead of them. These stocks -- and countless others, from Qualcomm (Nasdaq: QCOM) to Applied Materials (Nasdaq: AMAT) -- were wickedly profitable back when I started investing for another reason. They weren't so heavily owned on Wall Street.

As a result, demand was light, and the "auction" market for these stocks was inefficient. In fact, second only to their ability to ramp up their revenues exponentially, I think this inefficient pricing explains why small-company stocks have historically outperformed all others.

Confessions of a small-cap junkie
That's why I rarely dabble in big names. But I make exceptions, particularly when markets get out of whack. That's how I got tangled up with my No. 1 top holding more than 15 years ago: I picked it over US Bancorp (NYSE: USB) and Wells Fargo (NYSE: WFC) among a group that was priced for bankruptcy.

I never even considered that the company would set the world on fire; only that the stock was a value. Plus, it was a name I never expected to get a chance to buy so cheap. Which brings me to the reason I decided to write this column.

You see, I think we have a similar opportunity right now. This dawned on me when I noticed my dream stocks popping up alongside the usual "cigar butts" on the old-timers' lists of top value stocks -- most notably my pal Philip Durell's Inside Value scorecard.

An "inverted Nifty Fifty"?
Sadly, I can't take credit for that one. Money manager Christopher Davis coined the phrase to explain how America's top companies are now among the market's cheapest stocks. Davis says, "We get this opportunity once every 10 or so years."

I'd say less often than that. There are one-off exceptions, of course. In 2004, Coca-Cola (NYSE: KO) got so cheap I had to buy it. I'm glad I did. Same story with my No. 1 top holding back in 1991. But I don't recall seeing anything like this.

Earlier, I mentioned Durell's Inside Value scorecard. Suddenly, in place of the usual has-beens and out-of-favor industries, it reads like a who's who of America's top brands. An inverted Nifty Fifty is right.

I put my money where my mouth is
A while back, I rolled over a 401(k) from a past job. I considered dumping it into an index fund, but I had a better idea. I bought a handful of big names I lifted straight from Philip's Inside Value scorecard. I've never slept better.

Remember, I needed stocks I didn't have to watch every day, preferably ones that paid dividends. Philip simply told which names were cheap. Oh, and I also re-upped on beleaguered Bank of America, with its near-7% yield ... you guessed it, my No. 1 top holding.

Yes, things look bleak for me today, but do you think it was easy buying the banks in 1991? Buying value can be scary. But if you've ever wanted to earn "story stock" profits with "value stock" risk, the inverted Nifty Fifty is your chance.

I really think Phillip Durell can help. Especially since you can try his Inside Value newsletter service free for a whole month. You can quickly check out every blue-chip value stock he's recommended, flip through every back issue, and see his top five picks for new money right now. If you don't think it's a value, you don't pay a cent. To find out more about this free trial, click here.

This article was first published March 29, 2007. It has been updated.

Paul Elliott owns shares of Bank of America, Coca-Cola, and a handful of Durell's Inside Value recommendations. eBay is a Motley Fool Stock Advisor recommendation. US Bancorp and Bank of America are Income Investor selections. Coca-Cola is an Inside Value pick. The Fool has a disclosure policy.