Money Hacks

There are a couple solid approaches to rational stock-market investing. The easiest, of course, is to stick your money into mutual funds. Another approach, however, is to pursue value investing, a method practiced by big names like Benjamin Graham and Warren Buffet.

Value investing is the technique advocated by Phil Town in his recent book Rule #1 (my review at GRS). In plain English, value investing involves buying good companies at a discount price. Obviously there’s a lot of meaning in that one sentence — what’s a “good company”? what’s a “discount price”? — but this isn’t the place to explain the concept fully.

This is the place to share a fine source for beginning your quest for undervalued stocks. Every month in Money magazine, Michael Sivy shares his list of “blue-chip growth stocks for the long run”. This list is also available online. Sivy writes:

If there is any way to beat the market over the long run, it consists of following the strongest, most secure stocks and trying to scoop them up when they are measurably undervalued. There are surprisingly few such stocks that you need to follow on an on-going basis — we’ve come up with 70, which you can track in the table below.

What are the defining characteristics of these great growth stocks? Size is certainly part of it, and almost all of the stocks on the core list have market capitalizations and total revenues that top $5 billion a year. We also looked for companies with diverse product lines and dominant positions in their industries. As for growth, we sought companies that are capable of returning a steady 11 percent to 12 percent a year through a combination of earnings gains and yield.

I’m a big fan of index funds. But I also allocate a little money with which to invest in individual stocks. When I’m looking to find a new one, I start with the Sivy 70.