Over the long haul, nothing outperforms ordinary, everyday, dull-as-dishwater value stocks. If you want to make money in the stock market - serious money - buy value instead of rushing after glamour stocks.
Let me begin with an apology and a small confession. This column really isn’t about “the biggest investment opportunity.”
However, it is about the easiest, most consistent method ever devised for making money in stocks. And you are free to use it to virtually print money in your brokerage account.
So why the switcheroo?
The Investment U publisher said my original headline, “Why Boring Is Beautiful in the Stock Market,” would only cause potential readers to skip or delete this vital message without ever reading it. Why? Because the vast majority of investors — despite what they may tell you — don’t really want consistent moneymakers that generate great returns.
No, what they really want is fantastic stories.
You know what I’m talking about: secret currencies, blockbuster drugs, huge gold strikes, imminent takeovers.
Most of these “opportunities” never pan out, yet, like a large-mouth bass with an empty stomach, the average investor stands ready to snap at the next lure to drift by.
Don’t be fooled
But here is a genuine stock market secret for grown-ups: Making money in the stock market is not about fantastic stories or exciting words. It’s about cold, hard numbers.
And the best numbers often come from boring companies.
Let’s look at a couple of examples, starting with last year’s biggest glamour story: Apple (Nasdaq: AAPL).
Just a year ago, it was a must-own stock among most investors. And the company does have a well-deserved history of innovation, splashy product announcements and fabulous numbers.
Yet the stock plunged 24% over the past year while the broad market hit new all-time highs. Why? To paraphrase Bill Clinton: it’s the numbers, stupid.
Apple’s earnings growth has been negative (which makes it hard to call it growth at all). And while the tech giant has a long history of smashing earnings estimates, it most definitely hasn’t over the last four quarters. Consequently, the stock has plunged 270 points.
The real deal
Compare this to Plains All American Pipeline (NYSE: PAA), a boring company engaged in the pedestrian business of storing and transporting oil and gas. (Stifle that yawn.)
A top-performer in our Oxford Trading Portfolio, Plains has beaten consensus estimates by roughly 30% in each of the last four quarters. In the most recent period, net income soared 130% on a 15% increase in revenue. And — surprise, surprise — the stock is up 42% over the last 52 weeks, roughly doubling the return of the S&P 500.
This is not just a one-off.
Over the long haul, nothing outperforms ordinary, everyday, dull-as-dishwater value stocks. Yet instead of systematically screening for these companies, the ordinary investor rushes after glamour stocks the way young bachelors chase skirts, even though mountains of research show that value stocks — companies that are cheaper than average in terms of earnings ratios, cash flow and book value — are less risky, less volatile and perform far better over the long haul.
In short, if it’s excitement you’re after, then spend a weekend in Las Vegas or at Churchill Downs. But if you want to make money in the stock market — serious money — buy value not glamour.
The information contained in this article should not be construed as investment advice or as a solicitation to buy or sell any stock. Nothing published by Physician’s Money Digest should be considered personalized investment advice. Physician’s Money Digest, its writers and editors, and Intellisphere LLC and its employees are not responsible for errors and/or omissions.