To uncover fundamental investment value, my quality-driven value investing model uses a proprietary analysis to build and maintain a portfolio of the shares of quality companies purchased at value prices to fund life's essential milestones, such as buying a home, paying college tuition, sponsoring a wedding, pursuing a passion, starting a business, or enjoying a comfortable retirement.

Why Quality Value Investing?

For some background, beginning in 2009, I transitioned to bottom-up value investing after struggling as a top-down growth investor for several years. By modeling the guiding principles of legendary investors Warren Buffett, Benjamin Graham, Peter Lynch, and Howard Marks, I began to pick stocks driven by their influential collective wisdom.

Buffett on profiting from the magic of compounding:

The ideal business is one that earns very high returns on capital, and that keeps using lots of capital at those high returns. That becomes a compounding machine.

—Warren E. Buffett in his answer to an audience question at the 2003 Berkshire Hathaway, Inc. (NYSE: BRK-B) annual shareholder meeting.

Graham on owning stocks protected by a wide margin of safety:

Confronted with a challenge to distill the secret of sound investment into three words, we venture the following motto, 'Margin of Safety.'

—Benjamin Graham, The Intelligent Investor (New York: Harper Collins, 1949)

Lynch on keeping investing super simple:

Never invest in any idea you can't illustrate with a crayon.

—Peter Lynch (with John Rothchild), Beating the Street (New York: Simon & Schuster, 1993, 1994)

Marks on investing in present value instead of speculative growth:

The choice isn't really between value and growth but between value today and value tomorrow. Growth investing represents a bet on company performance that may or may not materialize in the future, while value investing is based primarily on the analysis of a company's current wealth.

—Howard Marks, The Most Important Thing (New York, Columbia University Press, 2011)

As a result of my investor reinvention over 14 years ago, our concentrated family portfolio of the common shares of quality enterprises has outperformed the S&P 500 based on an equal-cap weighted average total return per holding during the same periods. I was fortunate to discover first-hand how value investing prevails through all market cycles.

Acquiring Buffett's magical compounding, Graham's three-word secret, Lynch's crayon metaphor, and Marks' growth vs. value juxtaposition debunked my previous reliance on deep-dive analysis paralysis, business modeling overkill, and foolish attempts at predicting specific future outcomes when selecting individual stocks. As a result of my renewed approach, I transitioned from an underperforming, near-sighted stock trader to a market-beating, far-sighted company investor.

I shared the experience as a case study in my fourth book, Build Wealth with Common Stocks: Market-Beating Strategies for the Individual Investor. I am excited to bring the value-investing ideals of thought, discipline, and patience to TalkMarkets to educate followers and readers on building life-changing portfolios.

Quality Value Investing's Checklist Approach

My checklist-based approach to stock-picking generates an actionable investment thesis summarizing why I rate the company and its stock as a buy, hold, or sell. My easy-to-read and understandable primary ticker research reports examine the value proposition, shareholder yields, fundamentals, valuation multiples, and downside risks.

• The value proposition defines the competitive advantage that a company's products or services offer its customers compared to the industry, sector, or marketplace.
• As part of my due diligence, I average the total shareholder yields on earnings, free cash flow, and dividends to quantify how a targeted stock compares to the prevailing yield on the 10-Year Treasury benchmark note. In other words, what is the equity bond rate of the common shares?
• I then measure the company's fundamentals, uncovering the performance strength of its senior management by examining revenue growth, net profit margin, return on equity, and return on invested capital.
• I weigh four valuation multiples to estimate the intrinsic value of a targeted quality enterprise's stock price. The model reflects market sentiment proximate to the financial vertical of sales, earnings per share, cash flow, and enterprise value to operating earnings.
• When assessing the downside risks of a company and its common shares, I focus on five metrics that, in my experience as an individual investor and market observer, often predict the potential risk/reward of the investment. The research emphasizes the economic moat, short- and long-term debt coverage, stock price volatility, short-seller interest, and market sentiment.

I assign each comprehensive checklist metric a bullish, neutral, or bearish-weighted rating. In contrast, the downside risk ratings are above average, average, below average, or low. My recommended picks bias toward below-average risk and low-risk profiles.

By applying these methodologies, our family portfolio has outperformed the S&P 500 by overachieving on down-market days more often than in upmarket sessions, a crucial, mostly overlooked element of profitable common stock investing.

Despite my skepticism of predictive analysis, my research reports conclude with potential catalysts that confirm or contradict my investment thesis. Hence, readers get balanced final thoughts of an otherwise asymmetric analysis.

Nonetheless, the buy, hold, or sell investment thesis is based on a qualitative and quantitative evaluation of the company's current wealth and the stock price's present value. Quality businesses with shares trading at reasonable prices earn buy ratings; expensive stocks of otherwise enduring enterprises receive hold ratings, while poor quality companies rate as sell or avoid regardless of valuation.

The Quality Value Investor Profile

While every investor can participate and benefit from Quality Value Investing's narratives, the series best serves the following pre-retirement retail investors:

• Everyday investors keen on the value investing model of buying the common shares of excellent businesses when trading at reasonable prices. The investor seeks to open or maintain existing personal brokerage or tax-deferred accounts and needs inspiration in structuring and managing their portfolio. In addition, they seek easy-to-read and understandable narratives on high-quality, low-cost, and lesser-risk investing.
• Individual investors often build portfolios to finance their life's essential milestones, such as buying a home, paying college tuition, sponsoring a wedding, underwriting a hobby, starting a business, or enjoying a comfortable retirement. Thus, I aim to assist readers in discovering how to keep investing super simple by focusing on the more tangible current wealth and present value instead of speculative future price or growth targets. And then practice the behavioral arts of thought, discipline, and patience to take advantage of the magic of compounding, protected by a wide margin of safety to fund those milestones.

Invest With Thought, Discipline, and Patience

Do-it-yourself everyday stock investors can beat the market or their investment goals over time by sticking to a simple menu of time-tested, winning investment principles, strategies, and practices. Investing is '90 percent half' common sense, to paraphrase the baseball legend, Yogi Berra. The 'other half' is discipline and patience.

The more profitable approach to retail investing is putting quality before speculation. Thoughtful investors reject near-sighted trading schemes supporting controversial, unproven investment vehicles with limited utility for hopeful, although improbable, quick financial gains.

Disciplined investors learn to stop placing bets on faceless stocks and instead invest in quality businesses. This original concept of trading equities facilitated willing participants to take affordable partial stakes in publicly traded companies. I believe that approach remains the ideal model for the retail investor.

Patience is the scarcest and most valuable commodity available to everyday stock investors. Thus, informed investors have a far greater chance of getting rich slow than getting rich fast, and getting rich slowly is better than not.

As we navigate this current market cycle of unpredictability, remember that thoughtful, disciplined, and patient investors seldom lose money outside of the occasional market meltdown. Although good and evil in the world are everlasting, as investors, we should remind ourselves that common sense, a commitment to quality at value, and taking the long view are necessary to prevail through all market cycles.