Value investing is the only strategy proven to beat the market over the long term. Consider: If you'd invested $1,000 in value stocks in 1968, you would now hold $35,000 -- compared with $18,000 if you chose growth stocks, or a mere $8,500 if you'd picked the S&P 500. And if you don't think that's true, just look at how the value ethos has run roughshod over the market. From Warren Buffett and Charlie Munger at Berkshire Hathaway to Bill Ruane at Sequoia Fund to Rick Guerin at Pacific Partners, the disciples of Graham and Dodd have proved time and time again that hunting for value works in every kind of market.

Let's get hunting
There are six places I hunt for value for my Motley Fool Inside Value subscribers. They are:

  1. Wounded elephants
  2. Cyclicals
  3. Former glamour stocks
  4. Fallen angels
  5. Bankruptcy survivors
  6. Stealth stocks

Great names, to be sure. And they reap great rewards, as well.

Today's lesson
I need to start with a confession: I love glamour stocks. You know these stocks well: They're the ones with the great stories and the media hype -- the recently public Baidu (NASDAQ:BIDU), for example. But wait, you're saying. You're a value investor. How can you love story stocks?

Because I love it when they crash.

Motorola (NYSE:MOT) was one of the great story stocks of the 1990s, rising more than 10 times in value in just 10 years. But then the tech bubble burst, Motorola suffered an 18% decline in sales, and in only three years, the market took away almost all of the value the company spent 10 years accumulating. The story had run out of steam, but had the company?

The answer is a resounding "no." Despite market sentiment, Motorola still boasted an enormous portfolio of patents, a 75-year history of research and development, $27 billion in sales, and a foothold in the emerging mobile communications market. If you had the foresight to buy that story stock when the market thought its story had ended, you've realized 200% gains in just two years' time. As Warren Buffett says, it pays to be greedy when others are fearful.

This is how investors in Elan (NYSE:ELN) -- a stock that got dumped when the company suspended its Tysabri drug -- have nearly doubled their money since April and how investors in Tommy Hilfiger (NYSE:TOM) have nearly doubled their money since the company was subpoenaed for information concerning its commissions in September 2004.

Foolish final thoughts
What other story stocks could be ripe for the picking? I'll tell you: Cisco (NASDAQ:CSCO) and Taser (NASDAQ:TASR). Both companies are much more interesting now that they're down from the stratosphere. (Although I'll tell you that everything I love about Cisco's cash production is countered by everything I hate about its excessive employee stock option plan.)

If you want to join me in the hunt, consider a 30-day free trial to my Inside Value newsletter. We hunt down two market-beating values every month and help subscribers beat the market by nearly eight percentage points. Click here to learn more.

Ask the masters: Value works. Happy hunting!

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This is a revised version of "Hunting for Value," which was originally published on Nov. 18, 2004.

Philip Durell is the analyst for the Motley Fool Inside Value newsletter. He does not own shares of any stock mentioned.Taser is a Motley Fool Rule Breakers recommendation. The Motley Fool has a disclosure policy.