My friend and colleague Philip Durell has done what many academics view as impossible: His Motley Fool Inside Value newsletter has outpaced the S&P 500 for well more than a year. Since its inception, subscribers have seen some 12.28% growth from its picks, whereas the S&P 500 has risen only about 7.99%. 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, and 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, the call of cash 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.
About a month after I bought shares of credit-scoring giant Fair Isaac
This is not a one-time fluke. I've previously profiled my investment in insurance company Presidential Life
I'm not the only one who finds such companies, either. On Aug. 17, 2004, Inside Value subscriber Grit29 pointed us toward money management firm Janus
Inside Value subscriber tengen pointed out that enterprise software company Geac
picks are no different
I said that you could beat Philip's market-beating returns, and I meant it. Take his recent selection of cash advance firm Advance America
You also had ample opportunity to beat Philip with discount retailer Dollar Tree
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 not only will we knock $50 off the regular Inside Value subscription price, but you'll also receive a copy of value pioneer Benjamin Graham's masterpiece The Intelligent Investor as well as the Fool's Stocks 2006, absolutely free.
This article was originally published on Dec. 21, 2005. It has been updated.