When David and Tom Gardner recommend companies that already reside on the Stock Advisor scorecard, there's often hand-wringing, in no small part from me, their managing editor. Subscribers want new picks, I argue, not the same tickers again.
That's silly, the Gardner brothers counter, although usually more eloquently. If the best opportunity is in one you already own, go back for more! After all, their goal is to achieve the best possible returns, period.
Look what you've got!
Over time, I've come to agree with them (and Peter Lynch, whom they often quote on the matter) that the best stock to buy may be the one you already own. When you look at some of Lynch's investing principles, it makes sense to return for seconds.
1. Buy what you understand. Lynch was famous for spotting new investment opportunities in the course of his daily life. Shopping at the mall. Listening to the radio. Chatting with friends. If you can understand the business and like what you see, that's an excellent starting point. If you've been following that advice all along, the companies you already own are going to be the ones you understand best.
2. Do your homework. Watching the line snake out the door of your neighborhood Chipotle Mexican Grill
Lynch liked the PEG ratio for research. Fool analyst Joey Khattab wrote a useful article on that popular valuation tool, finding that, on average, companies with lower PEG ratios tended to outperform by a wide margin. Joey's leader was Hansen Natural
3. Invest for the long run. Lynch believed that stocks are relatively predictable over decades, but their short-term performance is essentially a coin flip. If the price drops after you buy shares, it might be time to add. If the story didn't change, you're getting more shares on sale.
Ultimately, however, David and Tom's best argument is a quick nod to the Stock Advisor scorecard.
David first recommended Marvel Entertainment
Tom recommended Quality Systems
Because, as he said in the November 2006 issue when he re-upped another pick, "In re-recommending Dolby Laboratories
It's hard to argue that kind of value, even if it's not as exciting as a brand-new pick.
So the next time you're looking for a place to park your new money, why not start with your old ideas?
David and Tom's record at Stock Advisor has been impressive thus far: Their picks are up 69% on average, versus S&P 500 gains of 29%. You can see all their picks and research with a free 30-day trial. Click here to get started.