What would you say to seven tips and five stocks that could help you eke out a 3.1-percentage-point victory over the S&P this year?

Not much, huh?

Let's just say CNBC won't be issuing a special news alert if you can manage to do this.

But ... 3.1% can mean the world
Expand that regular outperformance over the course of several decades, and you can live a life of luxury. To beat the market year in and year out -- even by seemingly small margins -- is what turns an otherwise dull, market-meeting portfolio into an explosive vehicle of growth. It can be done ... and quite simply at that.

Take a page from a man who averaged a 3.1-percentage-point victory over the market throughout much of the 20th century. His fund took a tiny $10,000 investment of yours in 1964 and grew it to $535,300 by 1995. And by beating the market by "only" 3.1 percentage points per a year, he'd put an extra $308,000 in your pocket.

No, not Bogle. The other guy.
His name is John Neff, and he's Vanguard's second-most-famous personality. I say that sardonically because Neff is an investing legend, but you may never have heard of him. Obscurity aside, Neff's success at Vanguard Windsor speaks for itself.  

Neff's book On Investing identifies precisely how he went about creating this juggernaut of a fund. It's not magic, it doesn't require fancy techniques, and if imitated, you could potentially duplicate his performance.

Nota bene
Neff's "principal elements" of a good investment include:

  1. A low price-to-earnings ratio.
  2. Fundamental growth in excess of 7%.
  3. Yield protection (i.e., a rising dividend).
  4. Superior relationship of total return to P/E paid.
  5. No cyclical exposure without compensating (i.e., lower) P/E multiple.
  6. A solid company in a growing field.
  7. A strong fundamental case.

What's the takeaway?
Neff's looking for good, cheap businesses that are growing nicely and offer dividend income as a buffer. This led to investments in companies such asMcDonald's (NYSE: MCD) and Citigroup (NYSE: C), which, at respective points of investment, were not only tremendously cheap but offered the other qualities as well.

Growth and income
According to John Train, who interviewed the legend in Money Masters of Our Time, Neff is the quintessential bargain hunter, but with a twist: He wants dividend-based income as opposed to growth alone. Considering the more regular and reliable nature of returns built upon dividends, Neff saturated Windsor with yields that averaged north of 2%. And it succeeded.

With an eye toward his style, take a look at five stocks I think Neff would find intriguing today:

 

Dividend Yield (TTM)

P/E (Current)

3-Year Annualized Earnings Growth (TTM)

Return on Equity (TTM)

Chubb (NYSE:CB)

2.8%

8.3

13.2%

18%

American Eagle Outfitters (NYSE:AEO)

2.8%

8.4

10.5%

24.7%

Chevron (NYSE:CVX)

3%

8.0

15.9%

25.2%

Cemex (NYSE:CX)

4.1%

8.5

14.5%

16.9%

Allied Irish Banks (NYSE:AIB)

10%

4.7

17.6%

20.6%

Data from Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.

There might be nothing more intimidating than dipping your toes into financials right now. But investors should note that Neff was particularly active in stocks and industries that weren't fetching the mob's favor at the time -- this was another of Neff's tacks that paid off handsomely.

The last step
The stocks above may not be perfect for your portfolio, but they're ideas that certainly can help jump-start your research. When hunting for new investments, look to well-priced, stodgy businesses that can offer a security blanket as well: dividends. These companies are closet performers and tend to do their jobs better than growth alone. Ultimately, they'll help you seize the kind of steady outperformance that leads to Neff-sized returns.

When you've found what you're searching for, take one last gem from Neff: Stick to your conclusion, and above all, be patient.

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Anand Chokkavelu updated this article, originally written by Nick Kapur and published Jan. 17, 2008. Anand owns shares of McDonald's, Citigroup, Cemex, and American Eagle. Cemex and Allied Irish Banks are Motley Fool Global Gains selections. Cemex and American Eagle Outfitters are Motley Fool Stock Advisor recommendations. The Fool owns shares of Cemex, Allied Irish Banks, and American Eagle Outfitters and has a disclosure policy.