5 Secrets of Investing Greatness

In Tom Gardner's Motley Fool Masters Investing Seminar, he describes what's different about investing Foolishly:

This is not following Wall Street quarterly estimates. This is not following the stock price, second by second, on CNBC. This is not day trading, and this is not trying to make money quickly in the next three months or six months. This is about building your portfolio for the next five years, the next 15 years -- for the rest of your life -- and hopefully teaching your family's future generations to do the same. This is the way wealth is created in the stock market: finding great organizations and investing in them, and letting those organizations grow.

Tom is standing on the shoulders of giants; his words echo the famous investing wisdom of Benjamin Graham, Warren Buffet's mentor, who advocated owning a company, not a stock. Graham introduced a generation of value investors to his approach to analyzing a business by its intrinsic value -- and buying into companies at less than their intrinsic worth. For our current generation of Foolish Investors, Tom identifies what he believes are five keys to finding and investing in greatness:

1. People
2. Profitability
3. Potential
4. Position
5. Purpose

Tom provides our Fool membership with an entire masters class on his five keys to investing, but I can provide you with a cheat-sheet version of Tom's investing strategy right here. To apply some of Tom's principles in our crash course in Foolish Investing, I've enlisted the 70,000 investors from Motley Fool CAPS to help me evaluate the top 10 most followed stocks on Fool.com according to Tom's 5 P's approach. So down that cup of coffee (or Red Bull), and let's get started!

Key No. 1: People
People matter. Conventional wisdom says that investing is all about tracking numbers, getting the hottest tips, and making the quickest decisions. Fools beg to differ. The people behind an organization are one of the biggest influences on how well investors will be rewarded over the long term. Among other factors, Tom has us look at a Shareholder-Friendliness, Management, and the CEO.

Here's how the CAPS community rates the people who run 10 popular companies on a scale of one to five, with five as the most positive rating:

Raise your hand if you're surprised to see Apple ranked highest on management talent. It's interesting to see Altria rank second, especially since it offers the largest dividend of the group. And it's a sign of the times that two financial stocks, Bank of America and Citibank, have the lowest People ratings.

Key No. 2: Profitablity
Although great businesses need a lot more than just a substantial bottom line, we certainly want to see that, too. We inspect the balance sheet to see whether our company has more cash than debt. We look for companies that generate consistent revenue growth and deploy capital effectively, with return on equity greater than 10%.

Here are the CAPS community's ratings on some key Profitability metrics:

Cash-rich Google looks good through this lens, but still no love for the hard-to-evaluate financial positions of Bank of America and Citibank...

Key No. 3: Potential
Owning stocks is not just about studying the past; it's about gazing into the future. Fools must know where that business can go in years to come. Is the company at a relatively early stage in its maturity cycle? If the company's products are at a late stage in their maturity cycle, are they the best offerings available? Can you envision multiple futures for this company? Does this company benefit from economies of scale?

CAPS community, may I have the envelope, please?

I'm beginning to see a trend here -- Apple rules the world! Altria slips, since in the future, we will all presumably live healthily. If not, Johnson and Johnson will be there to help.

Key No. 4: Position
Fools invest in companies that can protect themselves from competitors, substitutes, and all types of threats that can hurt a stock's performance over the long term. We look for companies with cost advantages that can't be replicated, or companies that convey social status in the use of their products or services.

I wonder who takes second place after Apple this time?

Sorry, Google, until you show that you can develop multiple revenue-generating products, Johnson and Johnson appears to be a better long-term opportunity to invest in as a company that can successfully develop innovative new products that generate new revenue streams for the business.

Key No. 5: Purpose
It's critical for a business to be surrounded by enthusiasm and to serve a larger mission. Ask yourself the question, "Would the world be worse off if this company didn't exist?"

I'd call Apple the Tiger Woods of this competition, but that analogy no longer works, does it? And the ratings in the Purpose category are:

Let's look at how the companies rank when we aggregate their scores across each of Tom's 5-P Categories (People, Profitability, Potential, Position, and Purpose):

Looks like our CAPS community has done a pretty good job of evaluating these businesses, at least relative to their past performance. We'll turn our analysis in to Professor Tom and wait for our final grade.