My friend and colleague Philip Durell has done what many academics view as impossible. His Motley Fool Inside Value newsletter has easily outpaced the S&P 500 for well more than a year. Since inception, subscribers have seen some 9% growth from its picks, whereas the S&P 500 has risen only about 6.2%. Philip has surpassed the index by following in the footsteps of generations of market-beating investors -- through the straightforward application of value principles.

The concept is simple. Look for a company trading well below its true worth. Buy it, then wait for the stock market to realize it has given you an unfairly low sale price. Once you're an owner, hold on as the business grows over time. If, however, the company later ends up trading well above its true value, sell. Lather, rinse, and repeat for long enough, and you too will likely soon find yourself well ahead of the pack.

Your extra edge
There is a catch, but it's something that you can exploit. Value investing, while a time-tested way to outperform the market, does not and cannot call the absolute bottom in a stock. Instead, it's all about comparing what the stock market thinks might happen to what cold, hard cash says is actually happening. And while the stock market may squawk loudly, cash's call is usually far clearer in the long run. Because of that dynamic tension, companies may still continue to drop even after value investors swoop in for their discounted purchase.

Once a month, Philip lays out the case for two companies to Inside Value subscribers. While both of them look to be trading well below where they should be, the odds are pretty low that they'll both choose the exact instant of publication to bottom out entirely. Yet it's the price at the time of publication that gets tracked in the scorecard. As often happens, the market subsequently moves those value-priced companies further down, making them even cheaper. As a subscriber, you get the inside scoop on two deeply discounted companies a month. You also often get the chance to buy them at an even better price after you've had the chance to verify their worth for yourself.

Real-world examples
Early on, Philip issued a challenge for subscribers to find an undervalued company. My entry was homebuilder Lennar (NYSE:LEN) (NYSE:LENb). The day of that posting, Lennar closed at $42.77. About two months later, it bottomed out at $41.37. Now, about a year and a half later, that homebuilder recently changed hands at $61.75, up 44% from where I found it, and 49% from where you could have bought it two months later.

This is not a one-time fluke. Last February, I uncovered specialty grain producer and alcohol distiller MGP Ingredients (NASDAQ:MGPI). I liked its price so much that I bought a chunk for myself, at a split-adjusted total cost of around $7.80 a share. In May, it bottomed out at $7.11. At a recent price of $13.05, I've seen a 67% gain in under a year, in spite of finding and buying it before the low. Had you followed along behind me and bought lower later, you could potentially have seen a better than 83% jump.

I'm not the only one who finds such companies, either. On March 18, 2005, Inside Value subscriber yttire pointed us toward Ceradyne (NASDAQ:CRDN), a defense contractor in the ceramics and body armor business. That very day, it closed at $24.34. In April, it bottomed out at $17.83. With a recent price of $52.62, yttire has seen the company's stock more than double, rising 116% in under a year. Had you bought a few weeks later, you could have done even better, more than tripling your investment.

Inside Value subscriber lostpros pointed out that Cigarette giant Altria (NYSE:MO) still looked attractive on Aug. 30, 2004. The stock closed the day at $48.98. The next month, it bottomed out at $44.50. Recently selling for $74.84, Altria has gained more than 52% for lostpros and more than 68% for someone following that lead a month later.

Inside Value picks are no different
I said that you could beat Philip's market-beating returns, and I meant it. Take recent selection Rent-A-Center (NASDAQ:RCII). The company bottomed out at $14.90 a few days after he picked it. That's nearly 19% below his scorecard price of $17.71. While it currently shows a market-beating return for the Inside Valuescorecard (available to subscribers only -- click here to take a free 30-day trial), you could have done even better. You had the luxury of taking your time, critiquing his logic, and analyzing the business for yourself -- and buying in at an even lower price.

You also had ample opportunity to beat Philip with British mortgage banking giant Lloyds TSB (NYSE:LYG). While the bank is now edging out the market for the scorecard, that's a recent reversal. In fact, you could have bought it cheaper than Philip did about a year after he picked it for the service. Talk about having the luxury to wait for the right company to come around at the right price!

Your opportunity still exists
Although the newsletter itself is handily beating the market, not every pick has followed suit. As of this writing, there are still a handful of Inside Value recommendations that are trading below their pick prices. You can review Philip's research, supplement it with your own, and then make the decision for yourself. That, my friend, is how you can beat the guy who is beating Wall Street. Click here to get started. Subscribe today, and you'll also receive a copy of Stocks 2006, the Fool's guide to investing in the year ahead, absolutely free.

This article was originally published on Dec. 21, 2005. It has been updated.

At the time of publication, Fool contributor and Inside Value team member Chuck Saletta owned shares of MGP Ingredients and class B shares of Lennar. The Fool has a disclosure policy.