The Lazy Investor’s Way to Beat the Market
What if I told you there was a simple three-step strategy for beating the market? One that could earn you triple-digit excess returns over the broad indexes?
And, to top it all off, what if I told you this strategy takes no more than 30 minutes per year to implement?
You’d probably think I’m pulling your leg. Well, here are the facts...
Over the last two decades, one lazy strategy has outperformed the S&P 500 by 114%. You can see it at work in this week’s chart.
And the kicker is...
It’s based on just one metric for selecting your stocks.
Low Price-to-Sales Stocks
The strategy got big attention in James O'Shaughnessy's What Works on Wall Street. In his research, the famed analyst found that large cap stocks with low value metrics - such as price-to-earnings, price-to-book and price-to-sales - had a tendency to outperform their higher value peers.
But of all of the value metrics he studied, the price-to-sales metric generated the highest excess returns.
Here’s how the strategy works.
- Step 1: Take the bottom 50 stocks of the S&P 500 based on P/S.
- Step 2: Invest in those companies.
- Step 3: Repeat steps 1 and 2 at the end of each year.
Amazingly, over the last 20 years the low P/S portfolio offered an average annual return of 15.4%, compared to just 9.9% from the S&P 500.
If you invested just $10,000 into this strategy at the end of 1995, you would now have $103,085. To compare, you would be sitting on $48,190 if you invested the same amount in the S&P 500. A 114% difference.
Four of the Most Undervalued S&P 500 Stocks Right Now
Want to add some value to your portfolio today? Using our low P/S metric, here are four undervalued stocks to consider:
- Aetna Inc. (NYSE: AET)
- American Airlines (Nasdaq: AAL)
- CarMax Inc. (NYSE: KMX)
- McKesson Corp. (NYSE: MCK)
These are just a handful of the large cap stocks our “lazy” strategy has selected. As an added touch, these companies also have double-digit annualized sales growth over the past five years.
So there you have it. A simple, effective strategy for beating the market.