The Nine “Secrets” of Value Investing Legends

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What works in everyday life, DOESN’T work with investing.

If you belong to the group of investors who have under performed the markets or lost money on stocks, don’t worry, you’re not alone. There are many talented and successful mathematicians, doctors, lawyers, and other professionals who are in the same camp. They’re smart and successful in their careers, but because they don’t have the right foundation and mental framework for investing, they end up making bad decisions. It’s not their fault.

Research studies by Dalbar Inc, Morningstar, and others point to one glaring fact. Individual investors underperform the stock market averages by a large margin because they make bad decisions. They consistently buy stocks at prices that are too high, and sell them at prices that are too low.
The reason that happens is because your lizard (primordial) brain is hardwired to avoid danger and to seek safety and pleasure. In most areas of life, it’s a recipe for success. In investing, it has the exact opposite effect.

If you invest when the stock market feels safest you’ll be investing most of your money during the latter stages of a bull market. This occurred in the late 1990’s and 2005-2007, right before severe market corrections.

If you sell your stocks when the stock market appears most dangerous such as 2002 and 2008, you’ll miss the ensuing stock market rally and the tremendous rise in prices that follow.

The greatest value investors of our time succeeded because they did the exact opposite. They bought good companies at low prices during stock market corrections and eventually sold them at higher prices during the later stages of bull markets. I’ll show you the framework of how they did that.

Finding Great Value Stocks

Finding the best stocks to buy should be fairly obvious. Just study the most successful stock investors of all time and do exactly what they did. Easy…right? Not exactly.

Over the years, countless investors have studied the works of Benjamin Graham, William O’Neil, Peter Lynch, Warren Buffett, George Soros, and other investing legends but fail to beat the market.

These amateur investors are successful professionals in their chosen fields and dedicated investors who spend hours analyzing stocks, studying technical patterns, trolling stock forums, and listening to the talking heads on TV. Yet, they still fail to beat the stock market indices because they don’t truly understand how to put all the pieces of the puzzle into place. If you fall into that category, you’re not alone.

I’m about to share with you the NINE STEPS that are the foundations of every great value stock investor, based upon my research. Using this NINE STEP process as a starting point has allowed me to beat the stock market averages by a comfortable margin, while mitigating some of the risks associated with investing in stocks. It’s the foundation of my award winning value stock newsletter, The Worthington Stock Letter.

I’ve tried to keep this article as concise and as straight to the point as possible. I’ve tried to provide a high level overview of what you what you need to know while eliminating all the noise around it. Stick to the blueprint below and you may even become a world class investor yourself.

Now let’s get started showing you how to make some serious money!

The Nine “Secret” Steps will be covered below

Proven Way To Find Stocks That Can Make You Wealthy

 

Step 1: Invest Only in What You Know or Understand
Step 2: Finding Undervalued Companies
Step 3: Size Matters
Step 4: Track Record
Step 5: Competitive Advantage
Step 6: Low Debt
Step 7: Cash Flow and How It’s Used
Step 8: Growth Prospects
Step 9: Limit Diversification
Conclusion

 

Step 1: Invest Only in What You Know or Understand

Two of the greatest investors of all time, Warren Buffet and Peter Lynch, recommend that you stick to what you know when you invest. This can be a particular industry or companies that you’re familiar with.

You’ll also see this with other great investors, like Jim Rogers who made his fortune in commodities, or George Soros with currencies. They have one or two strong areas of market competence and exploit their advantage to its fullest.

Investing in industries or markets that you don’t fully understand can lead to crucial mistakes in your analysis. In order to be successful, you need to have an edge over the other market participants. You have to understand the growth stage of the market and company you’re investing in, what metrics are important to successfully gauge future growth prospects for the company and industry, what the competitors are doing, if there is new technology that will impact the industry, and more.

In short order, you have to be an expert in that market and industry. If you fail to take into account the correct factors that drive the company financials or stock price, you are at a higher risk of reaching faulty conclusions.

The best way to learn what a company is doing and what’s important to the industry is of course, good old-fashioned research. Start with the companies 10K and 10Q. Look at research reports on the industry and company, read trade journals, and listen to the questions analysts ask during quarterly conference calls. Pay attention to the metrics and concepts that the analysts focus on during the conference calls. If they ask a question about a certain financial metric or strategy the company is using, that tells you it’s an important one to focus on.

You have to be able understand the business model and the industry in order to accurately assess whether the company is a good investment. If you can’t understand the business, then you are gambling, not investing.

Step 2: Finding Undervalued Companies

The second step to finding stocks that will outperform the stock market averages is to find companies that are currently undervalued according to financial analysis. In order to determine if a stock is a good investment or not, at a minimum, you have to do a quick financial analysis.

You have to determine reasonable probabilities as to the worth of the company, taking future growth prospects and potential pitfalls into consideration. If you cannot arrive at an estimation of a company’s worth, how can you decide if it’s a good investment or not? Short answer — you can’t.

In order to be a successful value investor, you need to have conviction in your analysis in order to ride out the inevitable ups and downs in the stock price. If you skip this step, you are doing nothing more than gambling on stock prices, and we all know how well that works for most people.

Proper financial analysis presents a significant hurdle for the part-time investor and for those who are mathematically challenged. It’s intimidating and can be a time-consuming and laborious process.

If you fall into the mathematically challenged or financially intimidated camp, don’t worry. Sometimes the simplest evaluations work just as well as the complicated ones, as you’ll soon find out.

The most popular stock valuation techniques include the dividend discount model, enterprise value (how much an acquirer would pay to buy the business) and Michael Porter’s Five Forces.

To learn more, I recommend reading Security Analysis by Benjamin Graham, David Dodd, and Seth Klarman, and Competitive Strategy; Techniques for Analyzing Industries and Competitors by Michael Porter.

While refined valuation models such as the dividend discount model or enterprise value are theoretically efficient, they can provide a false sense of security because of their sophisticated analysis techniques.

Like economics, financial analysis relies on certain assumptions and estimations to hold true. If those assumptions or estimations aren’t accurate, all of the calculations will be off, and the financial analysis will be faulty and not much better than a guess. Guesses don’t translate into consistent profits.

There’s another complication. Using different valuation methods, investors will come to different conclusions. Even those using the same technique may arrive at different estimates depending on the assumptions they use for current asset values and the company’s future growth prospects.

On top of that, accounting can be a bit tricky. It can lead investors to misprice the value of a stock. Even when firms follow generally accepted accounting principles (GAAP), there is a great deal of discretion in the treatment of accounting items.

Therefore, even sophisticated financial experts have misinterpreted crucial information in accounting statements. That’s why it’s always important to get a basic understanding of accounting tricks used by companies. A good starting point is to read the book Financial Shenanigans by Jeremy Porter.

While financial analysis isn’t perfect, you still have to do your homework if you want to have any chance of success. You have to do the proper due diligence on the stocks in which you’re investing. Remember that you are competing with investment banks, professional portfolio managers, hedge funds and other savvy investors who have a wealth of resources at their disposal.

Due to the knowledge and insight required to do accurate financial analysis, it may be in your best interest to use simpler valuation models, particularly if you’re a beginning investor or if you have time constraints that prevent you from doing a thorough and professional analysis. Otherwise, there is a big chance that your assumptions and estimations will be off, which will ultimately lead to bad decisions and lost money.

Let’s take a look at some time-tested, simple valuation techniques than anyone can use to find undervalued stocks. For most investors these short-cuts will work just as well and even better than the more complicated approaches.

Below, I cover the most common valuation ratios that have been empirically tested and proven to outperform the market averages across various studies. These include price-to-earnings, dividend-adjusted PEG, price-to-book and the price-to-sales ratio. If you are already familiar with these concepts and really know when they are to be used and what their limitations are, you can jump ahead to step 3.

Keep It Simple

Price-Earnings Ratio

The price-earnings ratio is the most commonly used measure to evaluate stocks. It is calculated by taking the company’s earnings per share for the last four quarters and dividing it into the share price. The price to earnings ratio or P/E ratio as it is more commonly called, measures how much a person is willing to spend for $1 of earnings.

Companies with lower P/E ratios have been proven to outperform their counterparts with higher P/E ratios. Value investors are typically looking for stocks with a P/E ratio below 12-15 depending on how strong bond yields are. Strict value investors may cap the P/E at 8-10.

When a company carries a low P/E ratio it either infers that the company is undervalued or that investors are unsure or not excited about the future growth prospects for the company. Analysis of the company is required to determine why the P/E is low.

There are a couple instances when using the P/E ratio doesn’t work. This first is if the company has negative earnings. The second is when you’re evaluating cyclical stocks.

Professional investors understand that cyclical stocks are unable to maintain their high
earnings during the peak of their market cycles. They discount those earnings while
doing their long-term growth estimations. Thus, the price-earnings ratios of these companies remain low during their high earnings cycle.

Unlike most other stocks, cyclical stocks should generally be sold when their P/E ratios are low and their stock prices are high. They should be bought during their down cycle when their stock prices are low and their price-earnings ratios are high.

With the exception of cyclical stocks and non-profitable companies, a low P/E can be a positive indicator of hidden value stock.

This concept can also be extended to the stock market in general. In 2009, the P/E ratios were historically high because company earnings were at depressed levels. It was a great time to buy stocks because earnings per share would eventually increase during the economic recovery which would have the effect of lowering P/E ratios.

Conversely P/E ratios were in line in 2008 prior to the economic collapse, but because we fell into a recession, earnings predictions were actually overstated. Because the denominator is earnings, this caused the P/E ratio to increase signaling that stocks were overvalued.

Dividend Adjusted PEG – Price to Earnings Growth (5 years)

Value investors are typically looking for stocks with a PEG ratio less than 1.0. Adjusted to reflect the dividend yield, the standard price to earnings or PEG ratio is referred to as the dividend-adjusted PEG ratio. It is calculated by dividing the price-earnings ratio by the sum of the estimated earnings growth rate and the dividend yield.

The dividend-adjusted PEG ratio encompasses three key components of value investing; the price-earnings ratio, earnings growth estimates, and the dividend yield. It is a more comprehensive view of the company compared to just using the P/E ratio.

The lower the PEG ratio, the more undervalued the stock is assumed to be. The caveat to the PEG ratio is that it is highly dependent on analyst’s growth estimates which are nothing more than educated guesses. A low Dividend Adjusted PEG Ratio, below 1, is a good starting point for finding value stocks.

Price-to-Book Value

Price-to-book value is the pillar of value investing. It is a very effective screen to find value stocks, especially when evaluating large established companies that aren’t in a growth phase. Studies have shown that low price-to-book value stocks outperform the market overall over time.

The book value of a company is equal to total assets minus liabilities. It is the value of a company’s assets that shareholders would theoretically receive if the company were liquidated (sold all of its assets and paid all of its debt). If the book value is greater than the share price, it is an indication that the stock is undervalued.

Strict value investors only invest in companies with a price-to-book value of less than
1.0 (i.e. current stock price is below its book value per share). Others are more permissive and simply require that the share price be within 1.2 to 1.5 times of the book value. I’d recommend the latter, as it offers more opportunities to invest in great companies at a fair price.

Note that the Price-to-Book ratio should not be used to evaluate financial stocks. The Price-to-Book value is useless if the company carries high debt levels or sustained losses. It is worth mentioning that banks typically carry large amounts of debt.

Another limitation is that the Price-to-Book ratio ignores the intrinsic value or economic goodwill of a company. For example, a company like Hershey or Coca Cola will always carry a higher book value because the brand name allows the company to charge higher prices.

In essence, companies with strong competitive advantages are worth more than the liquidation of their net tangible assets because they’re able to produce earnings in excess of a commodity type business. These earnings can be taken out of the business without any decrease in the traditional book value. Thus the calculated book value should be worth more than just the tangible assets of the company.

Price-to-Sales Ratio

The price-to-sales ratio measures how much a shareholder is willing to pay for $1 of a company’s revenues. The price-to-sales ratio is a much more effective ratio to use compared to the P/E ratio for companies that aren’t profitable and those that have erratic earnings.

Stocks with low price-to-sales ratios have higher returns than stocks with high price-to-sales ratios. Sales are more difficult to manipulate than earnings and typically less volatile. A good cut-off for value investors is a price-to-sales ratio of less than 1.5 with a preference for ratios less than 1.0.

It’s important to look at all ratios mentioned above to find good stocks to invest in. They all have their strengths and help to construct a holistic view of the company. After you find a stock that appears to be undervalued based on financial metrics, the next step is to determine if the stock should be bought and at what price.

Step 3: Size Matters

Blue Chip StocksBigger really is better, at least when it comes to value investing. The greatest value investors typically invest in large companies with a strong history of results for multiple reasons which we will cover throughout these steps.

Large Cap and big Mid-Market stocks typically perform better using a value investing approach. This is mainly because they have the financial resources and product diversification to overcome market setbacks. Smaller companies on the other hand typically do not have the resources or market diversification to bounce back as quickly from shifts in the marketplace. Many are
burdened by the high debt levels needed to grow and rely on a couple of main product lines, which makes them more susceptible to failure during severe market challenges. If they are a one trick pony, any disruption to that product will have severe consequences.

Another advantage of investing in larger companies is that they have higher daily trading volume which makes them easier to buy and sell without hurting your price. A good guideline to qualify as a company big enough to invest in, would be a company valued at above 1 – 2 billion dollars in today’s figures. Some prefer a higher minimum of 5 billion in revenue.

Step 4: Track Record

A solid history of above average financial performance is the next significant hurdle a company has to cross to be considered a great investment. The minimum acceptable history of above average market performance is five years, but 10 years or more is highly preferred.

You are looking for industry leaders that have consistently outperformed their peers in regards to earnings per share growth, operating margins, return on equity, and return on assets. This demonstrates that the company has good management and a competitive advantage that it has been able to maintain.

A big plus is if the company has not lost money during a recession. It indicates that the company has a product or service that is always in demand, whether times are good or bad. A strong track record points to strong consumer monopolies with consistent growth. This is exactly the type of company that Warren Buffett likes so much.

Step 5: Competitive Advantage

The next area to explore is whether the company has a distinct competitive advantage in the marketplace. A competitive edge enables the company to increase prices to offset inflation without losing sales in order to maintain profit margins.

Never invest in a company until you can at least make an informed decision that it has a clear competitive advantage in consumer demand in its marketplace. This edge can come from a strong brand name, a patent, a product that’s hard to duplicate, or a similar barrier to entry such as a unique business model that makes the product or service distinctive.

Once you’ve determined that the company has a competitive advantage, try to gauge how big and protected that advantage is. As Warren Buffett says; “How deep and wide is the moat around your castle?” The wider and deeper the moat around the castle (products/services), the harder it is for competing companies to penetrate the market.

A company with a monopoly in the market is able to raise prices relative to inflation without risking a significant loss in sales and profits.

Warren Buffett himself only buys companies with competitive advantages. He has always preferred to invest in consumer monopolies with products that will always be in demand in both good and poor economic environments. Examples include companies in the following categories; food, clothing, advertising, insurance, transportation, communication, drug companies, investment companies, and tax preparers.

Financial analysis can help to determine if a company holds a competitive advantage. If the company has a high return on capital compared to industry norms, it probably has a competitive advantage. Return on capital is the return a company makes after investing in the business.

Companies with strong competitive advantages are also characterized financially by strong cash flows, little need for long-term debt by industry standards, a strong consistent upward trend in earnings, and long-term price appreciation. Operating margins, net profit margins, and return on equity will all be above industry averages.

Stocks With A Competitive AdvantageNow let’s compare monopoly-type companies that have a strong competitive advantage
to companies that have weak market positions or sell commodity products or service.

Consumers buying what they perceive to be a commodity product or service make their buying decisions largely based on who has the lowest price. Products are seen as interchangeable because they lack brand differentiation. Therefore, the company is unable to raise prices when inflation occurs without losing market share.

This creates downward pricing pressure in the industry, excess market capacity during economic downturns, erratic profits with wild swings in earnings due to changing market conditions, low profit margins, and a low return on equity.

All these negatives make it less desirable to invest in a commodity-type company. Accordingly, before continuing further, determine if the company has an edge because of a strong brand name, a patent, a product that’s hard to duplicate, or a similar barrier to entry, such as a unique business model that makes the product or service hard to copy. Next, verify that edge by looking at their cash flows, long-term debt, earnings trend, long-term price appreciation, operating margins, net profit margins, and return on equity compared to industry averages.

The next two steps expand on the debt and cash flow portions of the analysis.

Step 6: Low Debt

The majority of value-investing legends avoided companies with a lot of debt on their books. Taken to the extreme, Walter Schloss preferred companies that had no long-term debt at all.

Unless you are a specialist in turnaround situations or have some special insight, it is wise to avoid companies in financial distress and those with high debt levels compared to industry averages. Companies with higher than normal debt levels carry a higher risk of under-performing financially, mainly due to the higher fixed costs associated with interest expense.

The risks of a company performing poorly or going under during an economic downturn because of high debt levels are too great to justify investing in them (unless you are a specialist).

I would recommend a debt to equity level of 25% or less, but this depends on the industry. Ultimately, the lower the debt, the better.

Step 7: Cash Flow and How It’s Used

Company Cash FlowsCash flow is an important ratio to incorporate when evaluating a company’s financial strength. Companies with high cash flows per share can expand during periods of economic expansion, as well as cover expenses when sales decline during economic slowdowns or adverse conditions. It also allows them to use excess cash for the investors benefit.

A good way to judge the cash strength of a company is to check out its cash flow per share. Cash flow per share is calculated by adding depreciation and amortization to income before extraordinary items, then dividing by the fully diluted average number of common shares outstanding.

If you’re unfamiliar with the calculation of cash flow per share you can find examples on investopedia.com or wikopedia.com, among other resources.

Cash flow measures the real inflows and outflows of cash by subtracting non-cash items. The higher the company’s cash flow per share the better.

If the company’s cash flow is healthy compared to industry standards, the most important thing to do is to investigate how the company uses their excess cash. Warren Buffett and John Neff, among others, have espoused the benefits of finding companies that use excess cash in ways that are pro investor, including:

• Paying additional dividends.
• Re-buying stock shares.
• Funding acquisitions of related companies with a competitive advantage. Warren Buffett warns against companies making acquisitions in commodity type businesses for the sake of growth.
• Reinvesting the extra cash back into the company.

Academic research has shown that companies that repurchase shares on the open market outperform those that don’t. “Market Underreaction to Open Market Share Repurchases,” which appeared in the Journal of Financial Economics, was an example of such a study.

While the presence of dividends is not necessary, it adds a level of protection to your investment and increases the total return on investment. Hedge funds are less likely to short stocks with high dividends because they can be on the hook for those dividends.

Remember to look for companies that are investor friendly. They will reward you nicely with above average returns.

Step 8: Growth Prospects

I can’t count the times I’ve heard value investors complain about their returns. The typical motto is as follows: “There’s no reason company x should be at this price. It’s got a low P/E, plenty of cash on hand, and it’s selling less than book value.” These investors have fallen into the value investment trap. They’re constantly beating their heads against the wall in frustration because their stock price continues to stay flat or go down. No one else seems to notice the great value they’ve found in the company.

All I can tell them is that they’re only looking at part of the puzzle. Two of the biggest traps that value investors fall into are investing in companies that are undervalued because of debt concerns, and those that lack growth prospects. We’ve already covered the debt issue in Step 5. In this Step we’ll cover the importance of growth prospects and catalysts.

For those who haven’t heard the term catalyst, it refers to a person or thing that acts as a stimulus to bring about or hasten a result. In investing, it means that you’re looking for something that will cause the price of a stock to go up, or down if you’re shorting it. Keep in mind that the stock market is always forward looking. If you keep investing in companies that are “undervalued” because of a lack of growth prospects, you will end up holding dead money stocks that can only further decline in price or stay flat for many years to come.

That’s why this last step is crucial. The two best times to buy a value stock are when it has solid growth prospects for the long-term future, but has gone down in price due to an overall market correction, or when there’s a short-term economic catalyst that can push the stock price forward.

Here are a few shortcuts to help you judge the growth prospects of an improving company, or find a catalyst that can launch a company’s stock price upward. These short-cuts aren’t as good as doing your full due diligence, but they are extremely effective.

Analyst Sentiment

Because you’ll typically be investing in larger stocks with a following, you can use analyst sentiment to gauge future trends for the stock. Although there are inherent flaws relying on analysts’ buy/sell decisions, they are professionals who understand the company and industry very well.

If multiple analysts make upward revisions regarding future earnings estimates, you can be fairly certain that economic conditions are improving for the company, and that a higher stock price will follow. A secondary indicator has to be used in conjunction with this. If earnings are upgraded but sales remain flat, the price increase may be a trap that won’t last long.

Price Trends

The second short-cut is to study the stock’s price performance over the past three to six months. Is the stock starting to show signs of an upward price trend? Is the stock price experiencing higher highs and lower lows? If the answer is yes, it’s a good indication that the stock is being recognized by the investment community, and will continue to increase in demand and go up in price in the future.

Something New

This includes new management with a strong track record of success, a new market that develops for the company, or a new product introduction that other companies will not easily duplicate. Apple is a prime and rare example of all three happening at the same time. Steve Jobs came back to Apple (new management), and they introduced new revolutionary products in new markets. First there was iTunes, followed by the iPhone, and then the iPad. All products revolutionized the marketplace, giving Apple strong brand recognition and extensive price protection.

Favorable changes

These are changes within the industry or announced potential mergers and acquisitions that will reinforce the company’s position in the marketplace.

Stock Buybacks

This includes both insider buying and stock buybacks. The buyback has to be of significant volume. The best example of significant insider buying that I personally profited from was Las Vegas Sands (LVS). Due to heavy debt (negative) levels, the poor economy and bankruptcy concerns, the price of Las Vegas Sands stock dropped to less than $1.

Between March 27 and March 31 2009, Miriam and Sheldon Adelson bought 25,133,420 shares of the stock at $2.82 – $3.08 a share. Obviously, they knew something about the financing of the company.

The insider buying coupled with a positive price trend and a resilient industry was enough for me to shortly after, despite the high debt levels. I wish I could tell you I was still in the stock, but I sold my position for an extremely nice profit.

Before you invest in a stock, you must always ask yourself, “What does the market know that I don’t know?”

Step 9: Limit Diversification

The greatest value-investing legends do not over-diversify their holdings. Warren Buffett, George Soros, and William O’Neil among others, ignore academic theory regarding the value of reducing risk through diversification. Instead they make large concentrated bets on their best investment ideas.

Warren Buffett’s top five holdings have accounted for an average of 73% of his investments over the last 25 years. The number would be even greater if it weren’t for the large sums of money he now has to invest. This is best demonstrated by his recent investments of $5 billion in Goldman Sachs, $3 billion in General Electric and his purchase of Burlington Northern Santa Fe Railroad for $26 billion.

William O’Neil advises a maximum of five to six stocks if you have more than $100,000 to invest, and recommends as few as two to four stocks if you have less money to invest. This, of course, assumes that you are a good investor and know how to limit your losses.

Based on the above, is there any time when it makes sense to diversify further? The answer is yes — when you cannot beat the market averages on your own. Warren Buffett believes diversification is aimed at protecting people from their own shortcomings. In fact, he argues that the only investors who need broad diversification are those who have no experience. This, unfortunately, is the majority of investors.

In a 1998 speech at the University of Florida, Warren Buffett had the following to say; “If you are not a professional investor, if your goal is not to manage money in such a way that you get a significantly better return than the world, then I believe in extreme diversification. I believe that 98 or 99 percent — maybe more than 99 percent — of people who invest, should extensively diversify and not trade. That leads them to an index fund with very low costs. All they’re going to do is own a part of America. They’ve made a decision that owning a part of America is worthwhile. I don’t quarrel with that at all — that is the way they should approach it.”

Diversification is highly touted by many financial companies to limit their liability. However if you want to beat the market, you will have to limit your investments to the best stocks available.

Conclusion

It’s impossible to cover all aspects of investing in one article.  I have concentrated on teaching you the basics of sound investing by covering the fundamentals used by the greatest value investors of all-time.

Unfortunately for you, there is not a secret or simple formula that you can plug in and be guaranteed to match the performance of the best investors. Just as each of the most successful investors incorporated their unique talents and abilities upon the successful foundations and teachings in this article, you’ll have to do the same.

My personal success comes from using these principles on small-cap and mid-cap stocks along with the occasional large-cap stock. I have found that it helps to loosen the cash flow per share for companies that still have room to grow and to allow a little higher debt levels for capital intensive industries.

Here’s what I’d suggest you start with based on your experience.

Start with step 1.

Another approach is to set up a stock screen to find a list of potential companies to invest in. It will be the rare occasion when you find a stock that passes every condition perfectly. Therefore it’s important to set up separate stock screens for each of the value factors (P/E, PEG, P/S etc) and start with the lowest common denominator on the other steps.

Once you have a list of passing stocks generated by your stock screener, go through each of the listed steps identifying what you believe are the strongest companies that would be worth investing in.

When the stocks of those companies become undervalued due to a market correction or temporary setback, buy them and enjoy the big gains until the fundamental value has changed or a better investment opportunity comes along.

I would also highly recommend reading the reports from Berkshire Hathaway and top hedge funds to understand why they buy and sell the stocks they do.

I have given you the path of least resistance to beating the stock market on your own.

If you lack the time to do proper stock evaluation I would suggest subscribing to one of the higher performing stock newsletters.

If you would like some guidance consider following a stock newsletter for ideas, such as The Worthington Stock Letter which offers a list of some of the best value stocks. In addition to providing outstanding stock picks it’s a great learning tool and an absolute bargain.

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