Ask an average investor what she is looking for most. After some prodding, she???ll likely confess that she just wants a hot stock pick — one that will go up — and keep going up from day one.
Not that she cares much about the stock itself. It is really about the security the profits represent that matters. It is more about the vacation home, the boat and the secure retirement that the stock represents.
Of course, the real world is more complex. There, it is as much about finding and implementing the right overall investment strategy as it is about picking the right stock.
One answer is ???asset allocation.??? Accounting for more than 90% of your overall returns, it???s the decision whether to invest in stocks at all that is more important than which stock to buy.
Another answer is to choose the right investment strategy.
That may mean putting all your money into Berkshire Hathaway (BRK-B) and letting Warren Buffett manage your money.
Yet, thanks to the advent of exchange-traded funds (ETFs), there are plenty of other investment strategies in which you can put your money to work.
As it happens, I am somewhat of an ???investment strategy??? geek.
That???s why I monitor, on a daily basis, two dozen or so investment strategies that have a strong record of outperforming the broader U.S. stock market over time. Many have even outperformed Warren Buffett over the past few years.
Here???s what I have learned???
First, there are many different ways to skin the investment cat. Value, growth, buybacks, initial public offering (IPO) investing, insider sentiment and other strategies all approach the market differently in trying to outperform it.
Second, much like life, investment strategies have their seasons.
No investment strategy works in all markets, all the time. This year???s winners may turn out to be next year???s dogs — and vice versa.
In the roaring 1990s, it was the pie-in-the sky Internet story stocks that promised the quickest road to wealth.
In the late 2000s, the Commodities Supercycle and the China Miracle were the quickest ways to life-changing fortune.
In today???s zero-interest-rate world, it has been conservative, income-generating investments that have been the best bet in recent years.
With that caveat, below are the top-three-performing investment strategies that I monitor and their returns versus the S&P 500 year to date.
1. Deep Value ETF (DVP)
The Deep Value ETF tracks an index of 20 stocks selected from the S&P 500. It identifies undervalued stocks using proprietary quality screens — positive earnings, dividends, etc. — and valuation metrics like enterprise value to earnings before interest, taxes, depreciation and amortization (EBITDA).
Holding only about 20 names, DVP shows a big mid-cap tilt and significant sector biases.
S&P 500 vs. DVP year to date
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