Which Game Are You Playing?

Did you see the threes? March Madness brought a lot of tight games, and as usual, some of them were decided, or at least prolonged, by a bomber near the buzzer. The guys who made them were heroes, and the shots went into heavy rotation on the highlight reel.

What we don't see on the thrill tapes are the boring things that win games day in and day out: The sensible pass, the pedestrian pick, the modest layup. No one's excited by that stuff. They see it all game long. The teams that are great at it steamroll the competition, and without a tight finish, there's no opportunity for the amazing game-winner. Yawn.

It's easy to see why a lot of investors have the three-pointer attitude. They want to play in the exciting game, and they want to sink a trey at the buzzer. I know because I see it everywhere. And I get the email at least once a week about how I'm missing out on the next great wonder stock. Why don't I lay off that boring value stuff and take a few long shots?

Because I know about the games.

There's only one market, but there are several ways to play. The game you see on CNBC every day is every bit as nuts as tournament ball. There are ticking clocks, roaring crowds, screaming coaches, bald guys throwing chairs, and everyone is looking to drain one from the outside and win big with a risky shot. They're looking for Google at 90 times earnings. In this warped world, it might seem exciting and even necessary to hitch onto the hotshots. Unfortunately, in that game, the odds are stacked against you. In that game, a single airball (see Google, again) can hand you a major loss.

But here's something you should know. There's another game out there with no shot clock, no screaming fans, no possession arrow, and no defense to speak of. It's called value investing, and when you play on that court, you can forget about three-pointers and just lope on in for layups. Over and over again.

As you can imagine, it's a lot easier to run up a good score this way. Let's take an example. How would you like a 15% annual return? Yeah, I thought so. But if you think you need to take a lot of long shots to put up those numbers, think again. You can do it with short ball.

I recently ran a screen that found more than 900 companies whose (dividend-adjusted) share price quadrupled over the past 10 years. That's about a 14.9% average annual return (against the 8.8% return provided by the S&P).

More than 100 of these winners were already large household names when they began that run: the investing equivalent of an inside shot. You could have gotten these market-whipping returns with companies like Microsoft, Target, and Wal-Mart -- which was already worth $50 billion back then.

Here are just 10 of the rest.

It's pretty easy to see that you didn't need to huck 'em from the cheap seats in order to beat the market. In fact, it's also clear that there were some easy layups in this crowd. Dell had been compounding EPS by 27% per year for the three years prior to 1996. Over the same period, Harley had been growing the shareholders' bottom line by 26%. Yet these two, and most of the others, were trading at less than 10 times free cash flow.

I don't think that's a coincidence. Study after study has shown that paying bottom-dollar is a great way, if not the best way, to beat the market. Why? In the market, all those missed three-pointers -- the ones that never make the highlight film -- well, they come back to haunt you, spiking your returns and sending you on a long, lonely, empty-handed bus ride home.

That's why at Motley Fool Inside Value, we always try to play on the empty court and wait for those unopposed layups. While everyone else is chasing excitement, we look for established companies that have lost their luster and are priced for failure. Then we wait for them to walk up and drop the ball through the hoop. Sure, we miss a few, but when you're throwing them in from close range, you tend to win. If you'd like to see how we do it, you can get a free ticket.

Seth Jayson wasn't sure he had two full weeks' worth of basketball analogies left in him, but he gave it the old college try. At the time of publication, he had shares of Microsoft, but no positions in any other company mentioned. View his stock holdings and Fool profile here . Dell and Microsoft are Inside Value recommendations. Dell and UnitedHealth are Stock Advisor recommendations. Fool rules arehere.