The Motley Fool Investment Guide: Third Edition: How the Fools Beat Wall Street's Wise Men and How You Can Too

The primary reason for buying small-cap stocks is that mutual funds and institutions often cannot buy them . . . yet. Or even if they can, mutual funds and institutions cannot build up any meaningful holding. “Meaningful” here is defined as “in a sufficient quantity to make any noticeable difference to the fund’s overall performance.

OVERVIEW: WHAT TOM LOOKS FOR 1. An ownership structure that is vested and aligned with the interests of shareholders. 2. A higher purpose that inspires long-term growth. 3. Evidence that when the business wins, customers, employees, and the world also win. 4. High levels of employee engagement and retention.

We’re now talking about the two biggest threats to your (or your family’s) long-term investment survival. Chasing Wealth, you may run headlong into a guillotine. But chasing Security is no less deadly a pursuit. In our first-ever issue of Ye Olde Printed Foole, we shared this contrarian line to which we still very much subscribe: “The least-mention

First, stop looking at earnings and start looking at cash flow. I would look at owner earnings: the cash generated by the business if it didn’t need to grow at all. It’s a steady-state level of cash flows for owners. The formula is simply after-tax net income, plus depreciation and amortization, minus maintenance capital expenditures (or what the c

Learning to be patient is one of the most important lessons for investors, but one of the most difficult to internalize. When the market is tanking and your portfolio is leaking more money with each hit of the refresh key, the inclination is to do something. Just when you should be most patient, your emotions and your brain make you the least.

CULTURE CHECKLIST A company founder who serves on the board or in company leadership. More than 5 percent insider ownership or executives who own meaningful personal stakes. Executive compensation that seems fair relative to the size and performance of the business. An employee-based CEO approval rating of more than 80 percent via Glassdoor. A work

The successful investor Bernard Baruch was once asked at a party for some stock picks. Rather than share his favorite ticker, Baruch explained his simple methodology for finding winning investments—one I’ve embraced as well: Find companies whose product you buy, use, throw away, or however you’ve used it, you need to repurchase it within thirty day

LUDIC REASONING Coined by Nassim Taleb in The Black Swan, this is the belief that the real world can be predicted with mathematical models and forecasts. It leads people astray because models are purposely simplified, while the real world is incomprehensibly complex.

When you’re running a valuation, try to find out whether there’s something people misunderstand about a company—some clouds that are obscuring the long-term vision for those who aren’t patient enough to look out several years. That’s when you can find amazing long-term bargains.