The Value Research way

How to (and how not to) create wealth by investing in stocks

- DHIRENDRA KUMAR

This month, on this regular page where I talk about our Stock Advisor service, I would like to talk about the investment philosophy of the service. What would you say is the right investment philosophy for the service? I know that most of you will have the simplest-possible answer, which is 'MONEY'. This is undoubtedly true and that's the goal. The service exists to help you make more money. In fact, the right term is not just to make money but to build wealth that can make a difference to your life. The real question is how you can make sure that you can use it to do that.

Our philosophy is simple: buy and hold stocks of high-quality businesses for a long time. A long time is defined as years or, eventually, even decades. Really, that's all there is to it. Obviously, some principles need to be followed. Let's look at these because this is what I call 'The Value Research way', without which even the greatest stock selection will not do the job.

This is the way

Invest in at least 20 to 30 stocks that we recommend: Diversification remains the cornerstone of a well-constructed portfolio. Holding a small number of stocks, no matter how well-chosen, does not work. You should start with our 'Best Buys' stocks and build from there over time.

Plan on holding any stock for many years: 'Many' sounds like an ill-defined term but the idea is central to our philosophy. Unless you need the money, there is no reason to sell a stock as long as everything is fine with the business. We don't believe in the target-price method, in which traders sell a stock as soon as a price target is met. There is no time limit or price limit to a good stock.