"Buy low, sell high" has long been the glibbest piece of investment advice stock investors have had to contend with. It's an essentially meaningless statement, after all, because the "advice" immediately raises the question of how to execute on it.
The answer to that question, of course, is this: with a lot of hard work. For example, even though they've racked up double-digit gains during a tepid market year, energy titans such as ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), ConocoPhillips (NYSE:COP), and BP (NYSE:BP) all trade at below-market price-to-earnings (P/E) multiples (the average P/E of the S&P is 17). But does that make 'em cheap? Not necessarily. To make that determination, you'll need to assess the quality of each company's management and future earnings growth prospects. You'll also need to account for the fact that those businesses are built on a seriously volatile commodity: crude oil.
At the other end of the valuation spectrum, you have the likes of eBay (NASDAQ:EBAY), Research In Motion (NASDAQ:RIMM), and Juniper Networks (NASDAQ:JNPR) -- three relatively racy companies whose P/E ratios are higher than the broader market's despite double-digit losses on the year. Does that make 'em pricey? Again, you can't know until you do the fundamental analysis and valuation math.
Like money, hate math?
And then there are mutual funds. Investing in high-quality mutual funds -- the kind I recommend each month in the pages of the Fool's Champion Funds newsletter service -- means hiring a proven stock picker to do the homework for you. The folks who head up Championship-caliber funds have delivered for their shareholders over the course of many years, cranking out market- and peer-besting gains by consistently executing a winning stock-picking strategy. And these funds won't charge you an arm and a leg -- and perhaps some other bodily part -- to invest in them, either.
Indeed, the typical fund I've recommended to subscribers will ding you roughly 1% per year. Compare that with your brokerage bills -- not to mention the hourly rate you ought to pay yourself for the hard work of researching stocks -- and call me in the morning.
Go forward, move ahead
To be sure, investing in mutual funds requires due diligence, too. After all, while gauging a fund based on its Morningstar or Lipper scores can be helpful, those purely quantitative, backward-looking measures will take you only so far. Indeed, if the management team that earned those marks has left the fund, they really won't tell you a thing.
Moreover, you need to make sure you're comfortable with a fund's strategy before taking the investment plunge. Sure, sector funds that run with concentrated portfolios made up of energy companies may be going gangbusters right now -- just as tech funds were in early 2000 -- but is that the kind of investment you want to rely on for such goals as buying a house, funding a child's college education, or preparing for a comfortable life during your golden years?
Thought not. And me neither.
Not to worry
So how, exactly, should you go about finding the funds that fit your timeline and tolerance for risk?
Good question, and one answer, I think, is to take a risk-free trial of Champion Funds. In the same way that a fund manager does your stock research homework for you, the newsletter represents a fund research crib sheet. I highlight worthy contenders from all corners of the market, and earlier this year, we rolled out the newsletter's model portfolios. These come in three flavors -- Aggressive, Moderate, and Conservative -- and they're designed to help you build a "perfect" portfolio of mutual funds -- i.e., one that'll suit your temperament as an investor.
When it comes to investing, "perfection" is always a work in progress. As you grow older, your financial goals necessarily change. And beyond that, while investing in funds is a great way to enjoy the stock market's gains without all that pesky volatility, you still need to keep an eye on the folks who manage your money.
Or you can let Champion Funds do that for you, too. You've got nothing to lose -- unless, of course, you actually like doing homework!
Shannon Zimmerman is the lead analyst for the Fool's Champion Funds newsletter service. Shannon owns none of the securities mentioned. The Motley Fool has a strict disclosure policy .
