The Way to Prosperity

When the Oracle of Omaha, Warren Buffett, started investing, he had $10,000. He turned it into the multibillion-dollar conglomerate Berkshire Hathaway (NYSE:BRK-A), (NYSE:BRK-B). Shelby Davis began with $50,000, and he amassed a $900 million fortune.

Inspirational stories of stock-market successes like these give me hope that I'll be able to achieve my personal financial goals. I bet you can too. 

I hear your objections: You don't have $50,000 to launch an investing career. Your bank account doesn't have $5,000 in it, let alone $10,000, to start building a retirement nest egg. Are you doomed to a life of penury and misery?

No! You don't need a trust fund as large as that of Trouble (the late Leona Helmsley's dog, who is the heir to her fortune), to start securing your financial future. In fact, a commitment to regular, small investments -- as little as $50 or $100 a month -- can start your million-dollar retirement account.

A four-step plan
The four keys to achieving this goal are:

• Start today!
• Invest regularly. Every month, put away $250, $100, even $50.
• Look to the stock market for your best hope of realizing your dreams.
• Seek undervalued small-cap stocks for your greatest returns.

You can beat the market
You know how important it is to invest sooner rather than later. And you know that putting small, regular amounts into the stock market can make a big difference over time. But why small caps?

Small caps make up the market segment that holds the most potential for great returns. With small caps, investors have an edge because institutions tend to ignore them, and analysts don't cover them. By the time anyone realizes they're there, they've already grown and appreciated in price. Even the venerable Eastman Kodak, which traces its lineage back to George Eastman's experiments on his mother's kitchen table, started off as a small company.

To find those small-cap stocks, we'll first run a simple screen, and then turn to the Motley Fool CAPS community to validate those choices. We want companies:

• with market values less than $2.5 billion, to qualify as a small cap.
• that trade above $5 a share, to weed out penny stocks.
• with stocks that grow and will grow more.

I'm looking for companies that had an earnings surprise of 20% or more last quarter but that also have the prospect of growing earnings at least 20% annually for the next five years, according to analysts.

The CAPS advantage
I take these companies and pair them up with the collective investing wisdom of the 78,000 professional and novice investors in the CAPS universe. If the best and brightest CAPS players also think these stocks hold potential, then we ought to take notice, too.

Here are some of the top stocks this simple screen found:

Screen results courtesy of MSN MoneyCentral; data courtesy of Reuters; CAPS ratings courtesy of Motley Fool CAPS. Prices as of Dec. 27.

Of course, this is not a list of stocks to buy. This is a starting point for more research. We need to look more closely at these companies to see if analysts' faith in them is well-founded. And we've got the CAPS community helping us here.

Foolish final thoughts
Academics will tell you that individual investors have little chance of beating the stock market. They say the Warren Buffetts, Shelby Davises, and Peter Lynches are the exceptions to the rule. We at The Motley Fool don't agree. Stock investing is not brain surgery. Finding good, undervalued companies is not as difficult as the professionals want you to think.

It is possible to make a more comfortable retirement for yourself, even if you have little money to start with or are starting late in life. It is possible to turn $100 into $1 million. You just have to commit: Do it now, and do it regularly. No amount is too small. Let's get started. There's no time to lose!