The Single Best Strategy

What a holy grail in the investment arena -- who wouldn't want to find the single best strategy for making money in stocks? Just about all of us would, of course, and perhaps that's why John Mauldin edited a book titled Just One Thing: Twelve of the World's Best Investors Reveal the ONE Strategy You Can't Overlook. (As you might have noticed, the book's subtitle reveals a contradiction -- it has not just one thing to offer but 12.)

Now, the investing strategy that seems best to me is value investing, which is all about seeking out undervalued companies. This approach offers a solid chance for stock-price appreciation, along with a built-in margin of safety. The father of value investing is the legendary investor Benjamin Graham, who explained: "The individual investor should act consistently as an investor and not as a speculator. This means ... that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money's worth for his purchase."

And as I perused Mauldin's book, I was intrigued to see that many of the lessons reflected value investing.

The royal road to riches
Here's one example from the book: Richard Russell of the Dow Theory Letters was profiled and had me nodding in agreement with many of the points he made. For example: "Compounding is the royal road to riches. Compounding is the safe road, the sure road, and, fortunately, anybody can do it."

Russell also stressed that investors should "look for values." He explained: "I judge an investment to be a good value when it offers (a) safety, (b) an attractive return, and (c) a good chance of appreciating in price."

Easier said than done
Finding great bargains isn't always easy, though. I sometimes try to unearth a few with stock screens, but screens are imperfect. Here, for example, are some companies that popped up when I used Yahoo! Finance's "Large-Cap Value" screen, which seeks out "stocks with market capitalizations greater than or equal to $5 billion with a price-to-earnings ratio less than or equal to 15 and a quick ratio of greater than or equal to 1.0." (I'll throw in an extra measure -- return on equity, which reflects how effectively the company is reinvesting earnings.)

Looks promising, right? But you need a lot more insight to make sense of it. For one thing, certain industries command higher P/Es, in general, than others do. So while a P/E of 8 might look really low for U.S. Steel, it is not out of the question in its industry. For instance, ArcelorMittal and Nucor (NYSE:NUE) trade for 10 and 11 times earnings, respectively.

If this kind of work doesn't appeal to you, you might want to stick to investing in simple index funds and perhaps aiming to boost those returns with some investments in individual stocks. I encourage you to try (for free, and with no obligation) our Motley Fool Inside Value newsletter. You'll be able to access all past issues and read about every recommendation in detail.

The single best strategy
So is there any kind of single best strategy? I suspect not, but perhaps the best approximation of one is, along with a few caveats, the old chestnut: "Buy low, sell high." I like that because it helps us remember that a stock's price does matter -- though it's not a simple task to determine how low a stock's price may be, and when it's too high. Still, on your own or with the help of a trusted guide, you can succeed at it.

Longtime contributor Selena Maranjian does not own shares of any company mentioned. For more about Selena, view her bio and her profile. The Motley Fool is Fools writing for Fools.