Bogle’s Rules of Success for the Everyday Investor, Plus Four Stocks that Make the Grade

In a recent article for Forbes, Validea CEO John Reese recounts some rules for investment outlined by Vanguard’s Jack Bogle in his 2012 book The Clash of the Cultures: Investment vs. Speculation, and how they apply to the everyday investor:

Remember Reversion to the Mean: The theory in finance that, over time, a stock’s price will tend to move back to its average. “The trouble comes,” says Reese, “when investors try to predict when such a reversion will take place by timing the market.”

Time is Your Friend, Impulse is Your Enemy: Reese cites the philosophy of Warren Buffett that argues against acting on short term share price fluctuations or “hunches.” If a business has strong fundamentals, “there’s no reason to allow emotion to influence your investing decision.”

Forget the Needle, Buy the Haystack: “Own the entire market,” Bogle asserts, adding, “Don’t do anything once you get the haystack. No more looking for needles.”

Reese describes Validea’s investment strategies that analyze business fundamentals and offers the follow high-scoring stocks:

  • NetEase (NTES) is a tech company that operates an interactive online community in China and earns high marks due to earnings predictability and a debt-free balance sheet.
  • Banco Macro SA (BMA) is an Argentina-based financial institution with an attractive PEG ratio (price-earnings divided by growth in earnings-per-share), earnings predictability and 10-year average return-on-equity.
  • Taiwan Semiconductor Mfg. Co. Ltd. (TSM) is engaged in the design and sale of integrated circuits and other semiconductor devices, and scores well based on its inventory-sales ratio and its ability to pay off debt with earnings within two years.
  • Middleby Corp. (MIDD) is engaged in the design, manufacture and sale of commercial foodservice, processing and residential kitchen equipment, and scores highly for a predictable earnings flow as well as cash flow-per-share.