History shows that the stock market has been, and can be, beaten by brave folks willing to buck the momentum herd and focus on fundamentals. The roster of those who are capable of delivering and sustaining market-beating investing results includes legends such as Warren Buffett, Benjamin Graham, Peter Lynch, and Bill Miller. Time and time again, the folks who can beat index trackers are firmly grounded in value-investing principles.
My friend and colleague Philip Durell has studied these masters, their strategies, and their successes. As the lead analyst for Motley Fool Inside Value, Philip's selections have easily outpaced the market's return (as measured by the S&P 500) since the newsletter's inception a little more than a year ago. He has done so by recommending attractively priced stalwarts like home-improvement giant Home Depot
Why value wins
The reason Philip's selections have bested the market is simple. Like the value greats who came before him, he selects strong companies that are going through short-term tough times. Consider the saga of travel and entertainment card giant American Express
It sounds crazy, but such things happen all the time. One of Philip's earliest watch list picks was health-care distributor Cardinal Health
The market is an emotional roller coaster. When things are going well for a company, its stock can get priced as though the good times will last forever. When things are going poorly, the market often overreacts on the downside, pricing an otherwise solid company as though its days are clearly numbered. With an objective understanding of the worth of a business, confidence that the market will eventually sort itself out, and enough patience to wait out the process, value investors have beaten the market time and time again. At Inside Value, we're confident that history will repeat itself and value will once again prevail.
Just after the market closes Wednesday afternoon, another issue of Inside Value will be released. With your trial, you'll also have access to everything we've ever published. You'll be able to take a look at our updated value chart for all of Inside Value's previous picks, and through back issues you can decide for yourself how much value remains in those selections. Click here to begin your free trial and start your journey toward replicating the market-thrashing success of history's greatest value investors.
This article was originally published on Sept. 14, 2005. It has been updated.
At the time of publication, Fool contributor and Inside Value team member ChuckSalettahad no ownership stake in any of the companies mentioned in this article. XM Satellite Radio is a Motley Fool Rule Breakers recommendation. Home Depot is a Motley Fool Inside Value recommendation. The Fool has adisclosure policy.