Start Investing Successfully Today

The absolute best time to begin implementing your winning investing strategy is the day you draw your first paycheck. By socking aside some cash in the stock market every payday and letting the power of compounding work its magic over decades, it becomes almost trivially simple to end up on top. Of course, if you're like most of us, that first paycheck has long come and gone. As a result, the opportunity to simply let your investments compound throughout your career is rapidly drifting away.

Fortunately, all is not lost. While the absolute best time to begin may have passed, your next best opportunity is today. Your first paycheck may be behind you, but you've still got the rest of your life ahead. Without the benefit of your entire lifetime to devote to compounding your money, however, you'll need a bit more from an investing strategy than simply buying the market and letting it run. You've got to start focusing on not just meeting the market, but beating it as well. A few well-chosen stocks supplementing your long-term strategy can help give your portfolio the boost it needs to make up for lost time.

Quite frankly, the market has been beaten for generations by those who've known what they've been doing. The trailblazers of Wall Street include greats like Benjamin Graham, Warren Buffett, Walter Schloss, and Bill Miller. They've left us with a clear path to follow in building our own market-beating portfolios.

Beating an imperfect market
The strategy these greats have all followed is known as value investing. Here's how it works:

1. Figure out what a company is really worth.
2. Determine how much the stock market is asking for the business.
3. Invest based on the difference between No. 1 and No. 2.
4. Wait for the market to realize and correct its mistake.

That's all it takes. It's a radically straightforward approach that still regularly crushes Wall Street, and it's exactly what we do at Motley Fool Inside Value. There's no magic involved. The toughest part is coming to grips with that first step, since you're essentially claiming that your analysis of the business is better than the market's.

No matter what the academics say, the stock market doesn't predict the future any more than my broken crystal ball does. At its best, the stock market reflects the aggregate consensus opinion of all its participants. And like any other mob, it's often wrong.

Noise in the system
Here's why many people believe the market is unbeatable: While it's often mistaken, it can be wrong in either direction. Sometimes it's too optimistic about a firm's future. Other times, it's too pessimistic. On average, over time, and across multiple companies, however, it tends to be about equally wrong in both directions. As a result, the errors largely cancel out over time, providing the illusion of an accurate forecast on average In other words, "two opposite wrongs make a statistical right."

To illustrate, here's a chart with a series of real-world returns from a handful of companies over the past year:

On average, this portfolio returned a shade less than 16%. That's not too far from the often-quoted long-run stock market return rate of roughly 11%. Note, though, that the closest any individual stock in this group came to that average return was General Electric's negative 2.15%. While the collection as a whole did about average, no single stock in the group returned anywhere near that level.

The value advantage
By focusing on the operating businesses behind the stocks, you can better determine when the companies look cheap, expensive, or properly priced, based on their potential. For example, you could very likely have predicted Ford's problems, based on the general malaise surrounding the American auto industry. Alternatively, the proliferation of the iPod and the popularity of iTunes were clear signals that Apple was roaring back to health. You didn't have to buy all the companies on that list. You could simply have focused your money on the ones where the business looked stronger than the stock price reflected. By investing there and ignoring the rest, you could very well have improved your returns.

Because the market so often gets its predictions wrong for any given stock, it creates tremendous opportunities for those of us who've learned to look for those chances. Simply put, we find and buy those businesses where the market's sentiment has turned overly pessimistic. By becoming owners, we then benefit when the market's next mood swing shifts the stock from the doghouse to the penthouse.

For instance, I currently own Doral, but I bought after its fall from grace. Its accounting issues spooked Wall Street so badly that the company simply sold off to unbelievable lows, below $8 a share. I didn't happen to catch the absolute bottom of the stock, but I did miss out on the vast majority of the descent. While those who've owned it for that whole year may be feeling significant financial pain, those of us who bought during the panic sale are doing far better.

At Inside Value, we're constantly looking for companies whose shares have been unfairly discarded by an upset market. Whenever a business appears significantly stronger than its share price would indicate, we pounce. Then, we simply wait for the market's tantrum to end and the stock to return to a fairer value. As it has for generations of investors before us, it's still working today, delivering market-beating returns.

Get started now
If it's been some time since you've cashed your first-ever paycheck, today really is your best day to begin your successful investing program. A new issue of Inside Value has just been released. In it, lead analyst Philip Durell reveals two companies (one of which is a monster Blue Chip) that currently meet his strict, value-investing based investing criteria. Want to discover Philip's newest picks? Click here to be my guest for a free 30-day trial. Subscribe today, and you'll also receive Around the World in 80 Minutes, the Fool's report on international investing, absolutely free.

At the time of publication, Fool contributor and Inside Value team member Chuck Saletta owned shares of General Electric and Doral Financial. Netflix is a Motley Fool Stock Advisor pick. The Fool has a disclosure policy.