A bit of advice about airline stocks: Resist them. I know it’s hard. Warren Buffett once joked about his own addiction, saying, “I am Warren, and I am an aeroholic.” Buffett’s mentor, the scholar and investor Benjamin Graham, was right from the start. He wrote in 1949 that it’s obvious that the airline industry will take off, but that doesn’t make airline stocks good investments. 

In the late 1980s, Buffett bought US Airways preferred shares anyway and made a little money for Berkshire Hathaway on the dividends, all the while disparaging his choice. In 2007, he wrote in his annual shareholder letter, “If a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down. Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it.” 

But he remained attracted. In 2016, he started buying a chunk of nearly the entire U.S. industry, eventually paying $7 billion to $8 billion to buy roughly 10% of American Airlines Group, United Airlines Holdings, Delta Air Lines, and Southwest Airlines. By 2019, he had a small profit. Then COVID-19 struck, and he immediately pulled out, calling his investments “an understandable mistake.” A year later, the stocks had taken off, with United and American more than doubling between May 1, 2020, and May 1, 2021. Such is life with airline stocks. They’re suitable only for short-term market timers, and no one—not even Warren Buffett—can time the market, knowing precisely when to jump in and out.

That is just one of the lessons that airline stocks teach. More important is the question of why, as Ben Graham predicted, they have been so lousy in the long run. If you understand the deficiencies of airlines, you can apply the wisdom more broadly.

Begin with just how poorly these stocks have performed. US Global Jets (JETS) is an exchange-traded fund that holds airline shares, with about 10% of its assets in each of the four largest U.S. carriers, another 30% in smaller international lines, and the rest in related stocks such as Boeing and Expedia. If you insist on owning a diversified portfolio of airline stocks, this is the best choice, however flawed. Over the past five years, the ETF has lost an annual average of 12%, compared with a gain of 9.3% for the broad-market S&P 500 index. (Prices and returns are as of October 7; stocks I like are in bold.) 

US Global Jets was launched only in 2015. The returns of the large airlines over long periods are mostly horrendous as well. American, for example, has returned a negative 9.9% annualized over 15 years, meaning a $10,000 investment would have collapsed to roughly $2,100 over the period. United was a loser, too. Southwest, the best-run of the four largest lines, managed a return of 5.8%, compared with 8.0% for the S&P 500; Delta returned a paltry 4.1%. Since 1978, there have been well over 100 bankruptcy filings by airlines. Airlines suffered in many different years. United filed in 2002, Delta in 2005 and American in 2011. The field is littered with fabled names of the past: Pan American (bankrupt in 1998), TWA (1992 and 2002), Eastern (1989 and 1991) and Buffett’s US Airways (2002 and 2004). 

So what’s the problem? There are several. Airlines are:

Too competitive. In 1978, Congress deregulated the airlines, allowing companies to set their own fares and routes—a boon to consumers, but the beginning of fare wars (and bankruptcies, as we have seen) for the lines themselves. In 1980, the average round-trip U.S. airfare was $593; today, it’s $328. After adjustment for inflation, fares have fallen 85%. Meanwhile, 381 domestic airlines are competing for business, but regulators and Congress have been reluctant to allow mergers that would give the larger ones a shot at better profitability. For example, a JetBlue Airways bid to buy low-cost carrier Spirit Airlines, even if successful, would likely face severe headwinds getting government approval. 

Too commoditized. Domestic airlines have tried hard, but they can’t differentiate themselves from each other by brand. All that counts is price and timetable, so no airline can charge a premium.

Too subject to the vagaries of the price of oil. Fuel represents an average of about 20% to 25% of an airline’s total costs, and although companies can hedge the cost in the futures market, they are generally helpless to control this volatile expense. 

Too capital intensive and debt ridden. Airlines need to invest heavily in planes through either purchases or leases, which means either raising equity (it’s difficult to attract investors in an industry that’s not very profitable) or issuing debt. At the end of 2021, for every $1 of equity, Delta had $19 in debt; for United, the figure was $12. Overall, the industry has a debt-to-equity ratio of about five to one, compared with one to one for all listed U.S. companies.  

Too dependent on organized labor. According to Forbes, airlines represent “the most heavily unionized major U.S. industry. At American Airlines, United Airlines and Southwest Airlines, three of the four largest airlines, between 80% and 85% of the workforce is unionized. Nationwide, about 11% of the workforce is unionized.” In addition, post-COVID, airlines are facing a severe and persistent pilot shortage, as well as difficulty hiring flight attendants and other staff. This crisis has led to operational cutbacks and extra expenses for both compensation and training. Alaska Airlines, perhaps the best-managed of all the U.S. carriers, recently agreed to raise the pay of its pilots this year by 15% to 23%.

Too lacking in innovation. Planes today are actually slower than they were 40 years ago. It takes 19 minutes longer to fly from New York to Denver than it did in 1983. And that figure doesn’t count the additional time at the airport for security. Much of the innovation in flying has gone into fuel conservation—a big reason for slower planes—but technology has not done much to improve either the efficiency or the comfort of flight.

Too dependent on government. Unlike in Europe, nearly all the airports in the U.S. are run by state and local governments and thus are subject to the constraints of bureaucracy and politics. The antiquated air-traffic control system, run by a federal agency, has bedeviled airlines for decades. 

For all these reasons, I urge you to stay away from airline stocks—and to apply these same lessons to the rest of your investing. But the wider aviation sector does offer opportunities to play the powerful trend of more and more of the world’s population going up in the air. 

Consider Air Transport Services Group (ATSG), a diversified maintenance, leasing and cargo company whose shares have actually risen in the past year. It trades at a price-earnings ratio, based on forecasts for year-ahead profits, of 11. Shares of a similar maintenance firm, AAR (AIR), have doubled from their 2020 low but remain modestly priced. Grupo Aeroportuario del Pacifico (PAC), which I recommended in my column last month on emerging markets, operates five airports, mostly on the West Coast of Mexico. The stock has held up this year and yields 5.3%. All of these stocks are small, with market caps ranging from $1 billion to $6 billion. 

If you’re having a hard time shaking your aeroholism, I’ll suggest Panama-based Copa Holdings (CPA), which flies to 29 destinations, mainly in Latin America. Founded in 1947, Copa trades at a P/E of just 9, based on projected profits. Yes, it’s an airline, but just one. 

James K. Glassman chairs Glassman Advisory, a public-affairs consulting firm. He does not write about his clients. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence. He owns none of the securities mentioned here. You can contact him at James_Glassman@kiplinger.com.

Like every other investor, I felt sick watching the Dow Jones industrial average lose three-eighths of its value in just 40 days in February and March. But I felt a little thrill as well. I had a list. I could buy stocks I loved at a discount. Or, to put it a little differently, I could now become a partner in some of the best businesses in the world at bargain prices.

Incredibly enough, many investors are resistant to bargains. They think of stocks as different from, say, sweaters. Imagine you have had your eye on a sweater in a store window, but it’s just too expensive. A few weeks later, it goes on sale at 10% off, but you wait—not enough of a deal. The next week, it’s marked down by another 20%, and you buy a gorgeous sweater to enjoy for life.

Waiting to buy at a sale price is a natural human endeavor, but stock investors often do the opposite. They buy when prices are rising—as though a store were beckoning you to buy a sweater by shouting, “Now Priced at 20% Extra!” Investors often see higher prices as a validation of a stock’s worth: It must be a good company if it keeps costing more to buy a share. Conversely, they think it must be a dog if the price keeps dropping.

Pretzel logic. That reasoning, however, is twisted. The very same company’s shares are offered, from day to day, at very different prices. Often the decisive factor, according to the late Benjamin Graham, the Columbia University polymath who was Warren Buffett’s mentor, is the mood of “Mister Market,” a guy who is sometimes full of optimism and sometimes horribly gloomy. Unfortunately, purchasing stocks when Mister Market is pessimistic requires discipline. A good trick is to make a wish list, whether on your computer, on paper or just in your head. What are the great companies you really want to own that are just too expensive now? Almost certainly, at some point, they will get cheaper. If they just keep going up, you may feel frustrated, but don’t worry. Dozens of great companies are out there. Wait for your price.

A good example is Starbucks (symbol SBUX, $74), which fell from $93 a share to $56 during the first two months of the global COVID-19 scare. When I bought Starbucks during this period, I did not, of course, pick the precise bottom. Nor do I know if Starbucks might again be back in the $50s (or lower) sometime soon. What I do know is that for years I have wanted to own part of this company, with its dominant global franchise, attractive locations and smart management. In addition, it’s a company with 4,200 stores in mainland China that have already undergone the cycle of coronavirus suffering and recovery and can educate their U.S. counterparts. (Prices are as of May 15, unless otherwise noted.)

Frame of mind is critical in wish-list investing. In 1987, Buffett wrote that when he and partner Charles Munger consider a stock purchase, “we approach the transaction as if we were buying into a private business.” Buffett and Munger see themselves as “business analysts” rather than stock analysts. Buffett explained that they “look at the economic prospects of the business, the people in charge of running it, and the price we must pay. We do not have in mind any time or price for sale.

Indeed, we are willing to hold a stock indefinitely.” I determine what I call a partnership price, one based not on strict calculations of return on investment or price-earnings ratio but simply linked to rough market capitalization (number of shares times price), a figure that I adjust to take into account balance sheets that are heavy with debt or cash. In other words, I make a loose estimate of what the company is worth, mainly by com­paring it with other companies. In the case of Starbucks, its market cap was about $100 billion when the stock was riding high early this year; debt and cash were not too significant. With the stock near its low, Starbucks’ market cap was $60 billion, or less than half the current market cap of McDonald’s (MCD), about one-third that of Netflix (NFLX) and one-fifth that of Procter & Gamble (PG). Rough comparisons like those persuaded me that Starbucks could come off my wish list and into my portfolio.

Wish-list investing is a variation of buying on dips. With that strategy, you typically own shares of a company already and purchase more when the price goes down. And you’re guessing it won’t fall more. With a wish list, you are not timing the market but making a long-term commitment to a company you love—ready, as Buffett says, “to hold a stock indefinitely.”

A wish-list company is one you are proud to own. One of those is Salesforce.com (CRM, $171), a leader in relationship management software, which helps companies acquire customers and service them via the cloud. Revenues at Salesforce are doubling every three years. Profits are minuscule, but it’s the business that counts—and the price of partnership, which fell from $193 a share on February 20 to $124 by March 16. I made my commitment. At the same time, I took the opportunity to buy another business I have wanted to own for a long time: Bank of America (BAC, $21), which lost half its value in little more than a month. I also decided it was time to buy companies in Europe, using the vehicle iShares MSCI EAFE (EFA, $55), an exchange-traded fund that owns such stocks as Nestlé, Novartis and SAP.

My fifth purchase during the COVID crash was also European: Paris-based Hermès International (HESAY, $72), the luxury maker and seller of leather goods, dresses, scarves, jewelry and furniture in 310 stores around the world. Hermès has extensive sales in China, and so the stock started its coronavirus decline in mid January, sliding from $80 to $55 in two months. At 31%, that loss looked modest compared with the decline of Starbucks or Bank of America. But family-controlled Hermès is a steady stock, and opportunities to pounce don’t come along often. I wrote about Hermès in the February issue of Kiplinger’s: “Can there possibly be a better business than one in which demand so exceeds supply?” At the time, the stock was trading at $75. I liked it then, but it didn’t come off my personal wish list until March.

Similarly, I bought Oneok (OKE, $32), the venerable natural gas pipeline and processing company that I wrote about in the April issue. Since then, the stock fell from $75 to $15, with the double-whammy of COVID and the petroleum-price collapse.

What’s still on the wish list? Wynn Resorts (WYNN, $78), the best of the casino companies, also began to fall in mid January because of its holdings in Macau, dependent on gamblers from China. Shares fell by two-thirds in just two months; I just didn’t pull the trigger. (You can’t buy all the sweaters that are on sale.) Nor did I take the occasion to buy Johnson & Johnson (JNJ, $148), one of the best-run health care companies in the world, or Chevron (CVX, $88), which hit a 10-year low.

Also, I regret that I have not (yet) bought Buffett’s Berkshire Hathaway (BRK-B, $169), a stock which, except during 2008–09, has gone nearly straight up. Berkshire fell about 30% but, unlike Hermès, hasn’t gained much of the loss back. The company is sitting on $128 billion in cash. Buffett certainly has his own wish list. Time to take Berkshire off mine and buy shares at last?

James K. Glassman chairs Glassman Advisory, a public-affairs consulting firm. He does not write about his clients. Of the stocks mentioned in this column, he owns Bank of America, Hermès, Oneok, Salesforce.com and Starbucks. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence.

Benjamin Graham had all the traits of a great investor—brains, curiosity and discipline. An immigrant to New York, his family was plunged into poverty when his father died. But Ben was a smart kid. He learned to read six languages in high school and went on to attend Columbia University, where he became a Greek scholar and, on graduation, received offers to teach from three disparate departments: mathematics, philosophy and English. Instead, he chose Wall Street, eventually teaching at Columbia’s business school, where Warren Buffett was among his students.

Graham had several big ideas. One was that the stock market was susceptible to the same kind of rigorous study as any academic subject. The result was Security Analysis, the classic book he wrote in 1934 with David Dodd. Another big idea was that investors should strive to own stocks that are priced low enough that they provide a “margin of error.”

Extreme value can produce extreme gains. As Graham wrote in the 1964 edition of The Intelligent Investor (first published in 1949), “In many cases there may be less real risk associated with buying a ‘bargain issue’ offering the chance of a large profit than with a conventional bond.”

You don’t have to be a brilliant analyst like Graham to recognize the value in value today. A study by Fidelity found that over the 26-year period through 2015, large-cap value stocks returned 9% compared with 8.6% for large-cap growth. Since then, however, growth has clobbered value.

Over the past three years, for example, Vanguard Russell 1000 Growth, an exchange-traded fund geared to a broad growth-stock index, has returned an annual average of 20.4%. Vanguard Russell 1000 Value (symbol VONV, $120) has returned just 9.6% an­nually. Value seems to be particularly undervalued right now. (Stocks and funds I like are in bold. Prices and returns are through December 31.)

Or simply check out the portfolio of Dodge & Cox Stock (DODGX), a superb large-cap value fund. Top holdings include Wells Fargo (WFC, 54), a venerable financial company beset by recent management turmoil, and Occidental Petroleum (OXY, $41), whose shares are down by nearly half since May 2018.

Other value-oriented mutual funds to consider include Homestead Value (HOVLX), whose top 10 holdings include Parker-Hannifin (PH, $206), a company that sells all kinds of monitoring equipment; Janus Henderson Small Cap Value (JSCVX), which has been loading up on financial-services stocks; and T. Rowe Price Equity Income (PRFDX), which owns value stocks that pay good dividends, including The Southern Co. (SO, $64), the Atlanta-based electric utility, now yielding close to 4%.

The big idea. Graham’s third—and perhaps most important—idea involved psychology. He wrote in The Intelligent Investor, “The investor’s chief problem—and even his worst enemy—is likely to be himself.” Here, he was ahead of his time. The rise of behavioral economics in recent years has shown that people often make financial decisions irrationally. For example, investors tend to devote more of their portfolio to stocks when shares have run up than when prices have fallen. By contrast, shoppers are more attracted to sweaters when they go on sale.

How do we protect ourselves against our own worst instincts? The best answer is dollar-cost averaging, investing the same amount of money regularly in the same bundle of stocks or mutual funds—or, for that matter, in a single index fund such as ETF SPDR S&P 500 (SPY, $322) or Schwab Total Stock Market (SWTSX).

Here’s an example: Assume you tell your bank to transfer $1,000 every quarter to a broker who is instructed to use it all to buy shares in a single stock. At the start of the first quarter, the market price of the stock is $25, so your $1,000 buys 40 shares (I’m leaving out transaction costs to make the illustration simple). Three months later, the stock has collapsed to $12.50, so your $1,000 buys 80 shares. The next quarter, the stock drops to $10, so you get 100 shares. Then, it jumps to $20, so you buy 50. At the end of a year, the stock price ends where it began, at $25. You have invested $4,000 and own 270 shares for an average cost of $14.81 each. Had you invested $4,000 all at once at the start of the year, your cost per share would be $25.

Of course, in this example, the stock falls and then rebounds to its original price. If the stock shot straight up, you might have been better off making the all-in investment. But the danger for investors comes not in a sharply rising market, when it’s easy to stay invested, but in a falling market, when the impulse is to bail out. Dollar-cost averaging allows you to view your investments in a completely different way. A falling stock price is not a calamity; in fact, it is a boon because it allows you to own a bigger chunk of the company.

It’s a rare investment that, at some point, does not fall below the price you paid for it. Graham emphasized both the likelihood and the transience of such declines. “The bona fide investor,” he wrote, “does not lose money merely because the market price of his holdings declines.” Investors lose money only if they actually sell at a loss.

The problem, as behavioral economists including Nobel Prize winner Richard Thaler have pointed out, is that investors are “loss averse,” which means “that they are distinctly more sensitive to losses than to gains.” When investors combine loss aversion with a propensity to check the dollar value of their portfolios frequently, they end up making mistakes—such as purging their portfolios of perfectly good stocks at precisely the wrong time.

A better viewpoint. When you dollar-cost average, on the other hand, you focus more on the number of shares you own than on the daily prices of those shares. You think of yourself as accumulating a bigger stake in an excellent business—or, if you own a broad-based mutual fund, in a time-tested economy.

“A serious investor,” Graham wrote, “is not likely to believe that the day-to-day or even month-to-month fluctuations of the stock market make him richer or poorer.” He’s right, but how many serious investors are there if we define serious as meaning immune to their own irrational impulses? Not many.

One solution Graham suggests is “some kind of mechanical method of varying the proportion of bonds to stocks in the investor’s portfolio.” If the market rises, the investor should “make sales out of his stockholdings, putting the proceeds into bonds; as it declines, he will reverse the procedure.” Graham advocates this strategy because it will give the investor “something to do” [Graham’s italics]; that is, it will “provide some outlet for his otherwise too pent-up energies.”

What Graham is describing is a form of regular portfolio rebalancing. Assume you decide on a mix of 60% stocks and 40% bonds. If, after a few years, the stock market rises 50% and bonds are flat, then just holding on to your assets gives you a new mix: 69% stocks and 31% bonds. But if you sell enough stocks and then use the proceeds to buy bonds, you’ll get back to 60-40.

I favor rebalancing, but I am a fanatic when it comes to dollar-cost averaging. Another advantage to this strategy is that it is a forced savings program. If a fixed amount comes out of your bank account each month or each quarter, you tend not to miss it because you never had it to spend. What a great way to tame your own worst enemy!

James K. GLassman chairs Glassman Advisory, a public affairs consulting firm. He does not write about his clients. He owns none of the stocks mentioned in this column. His most recent book is Safety Net: The Strategy for De-Risking Your Investments In a Time of Turbulence.

Around the beginning of 2018, the volatility of the stock market suddenly picked up. It was a worrying development for most investors, who prefer a smooth ride to a turbulent one. But volatility is a necessary condition if you want to deploy a strategy known as buying the dips, or BTD. The idea is to purchase stocks when they have dropped sharply, anticipating that they will bounce back.

The BTD strategy requires some courage, but it seems to work. In a recent paper, Vivian Ning, of investment research firm S&P Global, looked at every stock in the Russell 1000 index that fell at least 10% more than that index on a single day. In other words, if the Russell (roughly the 1,000 largest U.S. companies) fell 1.5%, the stock would have to have dropped 11.5% or more to be counted. Then Ning looked at the subsequent performance of those dipping stocks—again in comparison with the Russell 1000 as a whole.

What she found was striking. The BTD strategy “significantly outperforms” the index. Had you bought the fallen stocks, you would have beaten the Russell 1000 by an average of 0.47% the next day, by 4.8% over 30 days, and by an incredible 28% over 240 days. What’s more, these BTD opportunities for individual stocks are more common than you might think, typically occurring about 200 to 300 times a year for a group of 1,000 companies.

But don’t get carried away. Ning’s study included about 4,000 instances of 10%-plus declines in two years, both during a brutal bear market: 2008 and 2009. Her results may tell us more about the recovery of the market as a whole from the Great Recession (and confirming the simple strategy of maintaining your portfolio in tough times) than about a BTD strategy for picking individual stocks. Also, as Ning describes it, BTD is a strategy for traders, not long-term investors. Immediately jumping to buy a fallen stock—or several—in a single day is impractical.

A strategy for buy-and-holders. Rather than a mechanical strategy, I think of BTD as a sound idea to keep in mind as you apply a broad, buy-and-hold approach to investing. The best way to make money in the stock market is to purchase excellent companies and keep them as long as possible. Sell only if you need to cash out for a pressing need—such as a home purchase, tuition payment or retirement—or if you believe something important has changed about the company—new leadership that is inferior to the old, for example, or a fierce new competitor that drives down prices, or changing consumer tastes that management can’t adapt to.

When you buy a stock, you should think of yourself as a partner in a business. Every day, as Warren Buffett’s mentor Benjamin Graham put it, a character named Mr. Market offers to sell you shares in that business at a particular price. Wouldn’t you rather pay a low price than a high one for the shares? If you take the long view and you believe in the company, then you should love a low price.

Of course, Mr. Market often offers a low price as a signal that something terrible and irreparable has happened to the business. Take General Electric (symbol GE), for example. At the start of 2017, it was trading at about $32 a share. By January 2018, it had fallen by half. But if you had bought on that dip, you would have suffered a big loss. Rather than bouncing back, GE fell below $8 by early December. The decline brings to mind another Wall Street cliché: trying to catch a falling knife. Ouch! General Electric’s price has declined for good reasons. It is not the same company in the same environment as it was in 2000, when Jack Welch was CEO and the stock traded at $58.

Buying the dips is not a surefire route to success, but you can still exploit its two underlying principles: Mr. Market often goes too far in his pessimism, and good businesses frequently overcome setbacks. If you love a company and you think nothing serious has gone wrong, then consider a stock decline a fabulous buying opportunity. If 3M (MMM, $198, –21.3% off peak) was a good buy at $259 in January 2018, why isn’t it better when it’s $61 cheaper? It’s a solidly profitable industrial company with a history of rebounding when shares drop. ValueLine Investment Survey gives 3M a top rating of 100 for both earnings predictability and price stability, so capitalize on those rare dips. (Stocks I like are in bold; prices are as of December 7; the percentage is how far it’s fallen from its 52-week high.)

An example of BTD working well is Netflix (NFLX, $265, –36.7%), the leader in video streaming. Periodically, investors sour on the stock, presenting excellent buying opportunities. In July 2011, for example, Netflix was trading at $43; four months later, it was down to $9. It took two years to get back to $38, but by December 2, 2015, Mr. Market was demanding $131 for a share. Two months later, the price had dropped to $80. By July 2018, Netflix was trading at $419, but it has since fallen by more than one-third. Is now the time to buy? I think so, and the reason is not the detection of some magic pattern of price movements. It is simply that Netflix is a strong company with a great future. If you want to add to your holdings, the best time is when the stock has fallen sharply.

Good stocks, flagging industries. I don’t consider a dip worth buying until the price decline in a stock reaches 20% or more (the threshold that typically defines a bear market). Such fallen companies abound. Two of my favorites are Schlumberger (SLB, $43, –44.2%), the oil-service giant, which has dropped sharply over the past four years, and NVR (NVR, $2,457, –33.6%), a well-run homebuilder that never seemed to fall in price until 2018, when it declined by more than one-third from January through early December. These companies are suffering because their industries are languishing. Energy prices and demand for homes could certainly decline even more. But both sectors are cyclical, and when good times return, you’ll want to own the best of breed in your portfolio.

Tech stocks have also been hammered lately. Apple (AAPL, $168, –27.1%) presents an excellent BTD opportunity. So does Symantec (SYMC, $22, –25.2%), the cybersecurity company, with a price-earnings ratio, based on the consensus of analysts’ estimates for the next 12 months, of just 13; the shares are down by one-third since October 2017. Also tempting is International Business Machines (IBM, $119, –26.2%), which has fallen from $167 a share in January 2018. Big Blue carries a dividend yield of 5.3%. Unfortunately, the best of the tech stocks—Amazon.com (AMZN) and Alphabet (GOOGL)—are not down far enough from their highs, at least for now. Keep an eye on them, and consider buying if they fall more sharply. (For a slightly different take, see Technology Stocks: Should You Bail?.)

However, I would stay away from Facebook (FB), whose management seems unable to cope with troubles involving user privacy and the spread of “fake news.” The best way to take advantage of the BTD strategy is through the simple process of dollar-cost averaging. Make monthly or quarterly purchases of the stocks and funds in your portfolio in consistent dollar amounts. If prices decline, you get to buy more shares. You already do this if you contribute automatically to a 401(k) plan, for example. Or you could instruct your broker to buy $1,000 worth of a stock every three months. In January, if the stock is $100 a share, you can afford to purchase 10 shares. If the stock drops to $80 in April, you can afford 12.5 shares.

In the end, that’s the main advantage of BTD. It helps turn the basic emotions of investing upside down, making fear your ally and greed less compelling. If you are holding stock in a good business for the long term, lower prices help you grab as many shares as you can at bargain prices. Down can be a happy direction.

James K. Glassman chairs Glassman Advisory, a public-affairs consulting firm. He does not write about his clients. Of the stocks recommended in this column, he owns Amazon.com. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence.

Legends of investing, including Benjamin Graham and his disciple Warren Buffett, have long touted the advantages of value investing. Value stocks trade inexpensively compared with corporate measures such as sales, earnings and book value (assets minus liabilities). Historically, they have outperformed growth stocks, which boost earnings and sales faster than their peers. The thinking behind the value strategy is simple: Investors tend to bid up exciting, fast-growing companies to bloated levels and shun boring companies or those going through temporary problems.

When the market eventually comes to its senses and stock prices normalize, value wins. From July 1926 through May 2018, value stocks traded on U.S. stock markets outpaced growth stocks by an annualized 3.9 percentage points.

But for more than a decade, growth stocks have pummeled their bargain-priced counterparts. Since the beginning of the last bear market in 2007, Standard & Poor’s 500 Value index, which tracks value-oriented components of the broad market barometer, has returned a cumulative 77%, compared with a 179% return in the corresponding growth-stock yardstick. The walloping hasn’t been consistent; value outpaced growth in 2012 and 2016. Led by a still-booming tech sector, growth stocks in the S&P 500 have returned 11.6% so far in 2018, compared with 0.2% for value stocks. (Prices and other data are through July 13.)

Growth stocks usually sparkle in bull markets, but value shares tend to shine in down markets. At least that was the case between 1970 and 2006. When the stock market dropped 55% in the financial crisis and associated bear market of 2007–09, value should have shone. Except that value-oriented financial firms were at the heart of the mess, and lost 82% over the period. From June 2014 to January 2016, energy stocks, also value stalwarts, lost 42% as oil prices plummeted.

At 11 years, value’s current slump is the longest ever—“an extreme outlier,” says Scott Opsal, research director at the Leuthold Group, a market research and money management firm in Minneapolis. So investors are right to ask: Is value investing down for the count? Or is now the time to seize opportunities in a group of stocks poised to get off the mat?

Rebound Ready

The trends favoring growth have shown few signs of slowing down this year. But today’s environment favors a rebound in value stocks, say many analysts. For starters, whereas stocks of fast-growing companies are most attractive when profits and economic growth are scarce, bargains present better prospects when overall growth accelerates. Today, Wall Street analysts expect corporate profits to rise an average of 22% in 2018, up from 12% last year; Kiplinger estimates 2.9% gross domestic product growth this year, up from 2.3% in 2017.

And although value stocks nearly always look cheaper than growth stocks, the discount today is par­ticularly steep. Despite forecasts of similar levels of earnings gains for growth and value stocks, the S&P 500 Growth index trades at 21 times investment research firm S&P Capital IQ’s estimated 2018 earnings, on average, compared with a price-earnings ratio of 14.5 for the Value index. The 45% premium is well above the post-technology-bubble average of 28%.

Finally, rising short-term interest rates are also thought to benefit value stocks—particularly financial firms, which can reap more on their investments. Although today’s still-low long-term rates offer limited lending profits for the group, continued deregulation is in their favor. With these factors in mind, John Lynch, chief strategist at investment firm LPL Financial, says value is poised for a comeback.

Timing such cycles is difficult. But it’s a good idea to diversify your portfolio with the complementary styles of growth and value. Investors who already do this might find now an opportune time to rebalance. Consider: Someone who started with an equal amount invested in the S&P 500 Growth and Value indexes 10 years ago would now have 58% of assets in growth and 42% in value.

Great Values

Low-cost ETFs are an inexpensive, easy way to add value stocks to your portfolio. The SPDR S&P 500 Value ETF (symbol SPYV, $30) tracks its namesake index. The fund holds 384 stocks and charges an expense ratio of 0.04%. Top holdings include Berkshire Hathaway, JPMorgan Chase and ExxonMobil. Invesco S&P 500 Pure Value ETF (RPV, $67), with an expense ratio of 0.35%, tracks a limited version of the index featuring only stocks that rank in the bottom third of the S&P 500 by market size and that score high marks for value. Top holdings include CenturyLink and Kohl’s.

For a more targeted approach, consider Kiplinger ETF 20 member Invesco Dynamic Large-Cap Value (PWV, $36). The ETF charges 0.56% of assets and screens holdings for 10 factors, including quality and favorable share-price and earnings trends. The resulting 50-stock portfolio is full of blue chips, such as Procter & Gamble, Coca-Cola and Walt Disney.

Among actively managed funds, consider Dodge & Cox Stock (DODGX), a member of the Kiplinger 25, the list of our favorite no-load funds. The fund’s contrarian managers buy into fundamentally strong businesses whose shares are underpriced because of negative investor sentiment or unfavorable market environments. T. Rowe Price Value (TRVLX) invests in stocks that trade at a discount to historical averages, shares of their peers or the broad market. Both funds sport 15-year returns that place them among the top 13% of large-company value funds over that period.

Comanagers Stephen Yacktman and Jason Subotky at AMG Yacktman Focused Fund (YAFFX) home in on high-quality stocks trading on the cheap, favoring firms with robust free cash flow (cash profits left over after capital outlays) and little exposure to swings in the economy. An insistence on quality has bolstered returns during down markets. The fund, which at last check held only 22 stocks, lost 11.3% in the 2011 stock market correction, compared with an 18.6% decline in the broad market. Top holding: 21st Century Fox, Class B.

Boston Partners All Cap Value (BPAVX) has also proved its mettle during down markets. Manager Duilio Ramallo’s decision to lighten up on financial stocks paid off in 2008. The fund’s 27.6% loss that year beat the S&P 500 by 9.4 percentage points and placed it among the top 4% of large-company value funds. Today, financial stocks are back in the fund’s good graces: JPMorgan Chase, Bank of America and Citigroup are three of the fund’s top four holdings. The fund is also bullish on old-school tech, including Cisco Systems and Oracle.

Successful value investors share a common trait: patience. For those who can wait long enough, the strategy will pay off, says Leuthold’s Opsal. “At some point, the great growth winners of this bull market are going to run out of gas and people are going to get tired of overlooking consumer staples, financials and energy shares. The timing is not something you can put your finger on,” he says, “but there are a lot of ways for value to win.”

When I made a bit of money in 1980 on the sale of a regional magazine that I had started publishing in 1969, I looked for a reliable investment where I could put the proceeds to good use. That was a chore. I ended up buying some Treasuries (in 1980 they were yielding unprecedented amounts), I bought a vacation home, and I set aside some money to start another business.

After all these years — and even though the business I started was a financial publication called The Moneypaper, which should have given me a heads up — I still haven’t discovered an absolutely reliable way to put money to work. However, there are a few lessons I’ve learned since my quest began in the early 1980s, the most important of which is that time and patience are an investor’s most important assets.

To succeed as an investor, you need to have a long-term outlook. As the legendary value investor Benjamin Graham said: “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”

Saving and discipline

Perhaps, it’s best to acknowledge that saving is really difficult. Doing whatever it is you want to do today is much more compelling than saving for something in the future, which seems like a long way off. After all, it’s not unreasonable to upgrade to the latest smartphone. It takes wisdom to put off immediate pleasure, and, generally, wisdom comes with age. Yet your fortune depends mainly on time, and time is in limited supply when you have age. So, the earlier you learn this lesson, the better.

Successful investing demands discipline to continue to adhere to your predetermined strategy even when every fiber of your being is demanding that you allow your emotions to dictate. A disciplined approach to investing will force you to ignore what other people are doing. You won’t change course based on short-term events. You will be committed to the companies you own and hold them forever, or until the underlying business is no longer what you admired in the first place. Instead of reacting to market conditions, you will make a considered judgment before you take any action.

Time and again we see the volume of transactions spike at what will turn out to be a market bottom, or a market top. Of course, it is understandable that you will feel concern when you see the price of your stock decline sharply. You will want to get out before the stock price collapses and the company goes bankrupt. Whether those concerns are realistic is not the point. Your concern is to preserve whatever is left. While that is possibly a reasonable way to react, it is also probably not going to be a successful move for you as an investor.

When emotions win, investors lose

History shows that most investors buy high and sell low, which is certainly not in their best interest. With so much noise from the financial media, both novices and professionals are likely to fall victim to their emotions and stray from their discipline precisely when they need it most.

On the other hand, successful investors are able to take advantage of the opportunity provided by these less-disciplined investors. These are the few who have the financial wherewithal and stamina to withstand the loud and consistent advice of the pundits and market commentators.

If you’ve been reading my articles, you’ve noticed that I favor dividend reinvestment plan (DRIP) investing. DRIPs make it easier for even the smallest investor to establish a disciplined approach to investing. Investing through DRIPs can make regular systematic saving automatic, and it can make it more difficult to react emotionally to market conditions (panic selling and irrational exuberant buying). DRIP investing, utilizing dollar-cost averaging, is a strategy that accomplishes all of that and more.

A better way: How DRIPs work

The beauty of investing through a DRIP is simplicity. DRIP investing is based on investing dollar amounts, not buying share amounts. You decide how many dollars you intend to invest on a schedule that you set up in advance. By investing a fixed number of dollars on a regular basis, regardless of the share price, you end up buying more shares when prices are low and fewer shares when they are high, which is the classic goal for investors.

With DRIPs, you buy and you keep buying. Each month or each quarter or each year, you add to your holdings by making a certain dollar-amount investment and reinvesting your dividends. No matter what happens to the economy, you keep adding to your positions. This takes the emotion out of your investing decisions. You’re not trying to out-guess the market, hoping to move in at the bottom and get out at the top. Market timers usually enrich their brokers and the IRS more than themselves.

There are nearly 1,300 dividend-paying companies that offer the opportunity to buy shares directly through a DRIP. Many of them do not charge commissions or fees and will set up schedules to withdraw funds from your bank account to automatically fund your DRIP account in order to regularly buy additional shares (or fractions of shares, depending on the stock price) on the company investment dates.

My get-rich-slowly DRIP portfolio

Here is a 10-stock DRIP portfolio that could stand as a core portfolio for those who are seeking to get rich slowly, while minimizing the risk of falling prey to their emotions as they build wealth over the long term. You can click on the company names to find out the specifics of the company’s plan.

You’ll see that five of these companies charge fees for each investment — as much as $5 plus 6 cents a share (Costco Wholesale, ticker: COST). You should avoid making small regular purchases in such “high-fee” DRIPs. For instance, if you were to invest $500 into your account at the transfer agent for (COST), at current prices, your transaction cost would be about $5.24 — or about 1%. An investment of a smaller amount would result in an even higher percentage transaction cost. On the other hand, if the investment amount were larger, say $1,000, the transaction would be only 0.5% of the investment amount. Therefore, it’s more efficient to build your holdings in such companies by making larger investments — even if you must, therefore, invest less frequently.

Hormel Foods (HRL)

RPM International (RPM)

Altria Group (MO)

3M Company (MMM)

Johnson & Johnson (JNJ)

PepsiCo Inc. (PEP)

NextEra Energy (NEE)

Costco Wholesale (COST)

AbbVie Inc. (ABBV)

Union Pacific (UNP)

For more information on direct investing plans please visit our website at http://www.directinvesting.com.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Unfortunately, no single formula for selecting investments is guaranteed to beat the market averages. Life isn’t that easy. Still, over the past several decades, a few superb stock pickers have emerged. Nearly all of them have left paper trails, in the form of books and portfolios, and those trails are worth following.

Consider Benjamin Graham, coauthor of the classic 1934 text Security Analysis and author of The Intelligent Investor, a more readable book that was first published in 1949 and has been updated many times. Graham was a highly successful investor and the mentor of Warren Buffett, among others. Graham rejected stocks with high price-earnings ratios and demanded a “margin of safety” before he invested. Graham, who died in 1976, tried to find companies priced far below their intrinsic, or true, value (as he defined it).

Not even Buffett follows Graham’s extreme value strategy, but you can. The trick is to find companies with low P/Es and low ratios of price to book value (P/B), or net worth, on the balance sheet. Book value is not quite the same thing as Graham’s concept of intrinsic value, but it’s close enough.

A good example of a Graham stock is Wesco Aircraft Holdings (symbol WAIR), a small company that provides supply-chain management services to the aerospace industry, making sure planes have the parts they need (stocks and funds I recommend are in boldface). Wesco’s P/E, based on analysts’ average earnings estimates for the year that ends in September 2016, is just 11, compared with 15 for Standard & Poor’s 500-stock index. And Wesco’s P/B is a mere 1.1, only 10% greater than its balance-sheet value. The S&P 500’s P/B is 2.7. (Go to http://finance.yahoo.com to get P/Es and P/Bs for individual stocks; look under “Key Statistics.”)

Wesco is also a component of the Graham portfolio devised by John Reese, a money manager who founded a Web site called Validea.com and runs a newsletter called The Guru Investor. I first wrote about Reese 12 years ago. At the time, he had just launched a software program, Validea, that attempted to imitate the investing styles of a dozen investing gurus, including Graham.

These are unofficial portfolios, based on the writings and actions of managers who played no part in their composition (and some, like Graham, who are not even alive). But according to Reese’s data, a portfolio of stocks Graham might have favored, constructed using Validea’s software, has returned an impressive 10.4% annualized from its inception on July 15, 2003, through September 30, compared with just 5.5% annualized for the S&P 500.

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Focus on sales.

Among Validea’s top-performing guru portfolios is one based on the style of Ken Fisher, a California money manager and author of 100 Minds That Made the Market (1993) and several other books. Fisher is fond of stocks with a low ratio of price to sales (P/S), a more consistent valuation indicator, he believes, than P/E. Validea’s Fisher portfolio has returned an annualized 8.5% since 2003, or 3 points more than the return of the S&P 500. Recent additions to the portfolio include Mueller Industries (MLI), a Memphis maker of heating and air-conditioning equipment. Mueller has a P/S, based on the previous 12 months’ revenues, of just 0.75; a ratio of less than 1.0 can indicate a potential bargain.

Another guru, James O’Shaughnessy, is the author of one of my favorite investing books, What Works on Wall Street. O’Shaughnessy looked at decades of data and concluded that the best strategy combines elements of value and growth: a low P/S plus consistent earnings growth over five years and strong price performance over the previous 12 months. The notion of finding companies with strong business performance whose stocks have performed well recently but are still cheap makes a good deal of sense. The record of Validea’s O’Shaughnessy portfolio is stellar: an annualized return of 7.4% since its inception in 2003, or an average of 1.9 percentage points more than the S&P over the same period. Among recent additions to the portfolio is a favorite of mine, Cracker Barrel Old Country Store (CBRL), the restaurant and gift-shop chain. Its P/S is 1.2.

O’Shaughnessy himself manages several funds that put his strategy into practice, most notably O’Shaughnessy All Cap Core A (OFAAX), with an annualized return of 12.2% over the past five years, an average of 1.2 percentage points per year behind the S&P 500. I don’t recommend All Cap Core because it levies a 5.25% sales charge, but I like its strategy. Its top holdings include Home Depot (HD) and insurer Travelers Cos. (TRV).

Validea Capital Markets, which manages money for institutions and wealthy individuals, late last year launched an exchange-traded fund called Validea Market Legends ETF (VALX). The fund holds stocks from each of 10 Validea portfolios. Its top holdings as of September 30 were Lending Tree (TREE), the online mortgage marketplace, tied with Bofi Holding (BOFI), a San Diego–based bank, followed by Abiomed (ABMD), a maker of medical devices. In the first nine months of 2015, the ETF surrendered 9.2%, trailing the S&P 500 by 3.9 percentage points.

I think the Validea ETF will turn out to be a solid long-term performer, but my guess is that because of the wide variety of styles represented in the portfolio, the fund will produce returns close to those of the S&P 500. More adventurous investors should settle on a single strategy.

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The easiest one to mimic is Buffett’s. All you have to do is buy shares of Berkshire Hathaway (BRK-B), his holding company, which owns some private companies outright (for example, insurer Geico and BNSF Railway) and others in part. You can find Berkshire’s publicly traded holdings—45 of them—at www.cnbc.com/berkshire-hathaway-portfolio. Berkshire owns multibillion-dollar chunks of such household names as American Express (AXP), Procter & Gamble (PG) and Wells Fargo (WFC). It also has stakes in less-well-known stocks, such as Chicago Bridge & Iron (CBI), a Netherlands-based construction and engineering firm.

Buffett is more willing than Graham was to forsake a margin of safety to own companies that generate powerful cash flow. Validea’s Web site calls Buffett’s strategy “Patient Investor.” He buys nothing with the intention of selling it. He doesn’t care about short-term price movements. And he wants a strong brand name that is capable of producing long-term growth. Buffett started Berkshire in 1964, after buying a failing textile company. Since then, an investment of $10,000 has grown to more than $100 million.

Of course, there are no guarantees that cribbing from the gurus will produce such lovely returns. What these experts teach us for certain is that stocks are excellent investments over the long term, meaning several decades. Buffett wrote in his most recent annual report that stock prices will always be more volatile than cash in the short term. Over the longer term, he added, bonds and cash are “far riskier investments than widely diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions.” Amen.

James K. Glassman, a visiting fellow at the American Enterprise Institute, is author, most recently, of Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence. He owns none of the stocks mentioned.

I was impressed when my twentysomething son, Peter, told me recently that he was reading Benjamin Graham’s classic, The Intelligent Investor. Peter also subscribes (on his own) to Kiplinger’s Personal Finance magazine, of which I’m the editor, and he occasionally asks me for advice. I’m fortunate to have the expertise of our staff at my disposal, plus some thoughts of my own for beginning investors. I distilled them into an e-mail that Peter says he found “really helpful,” so I thought I’d share it:

Dear Peter,

1) Put safety first. Before you invest in anything, you should have money in the bank that you can easily get to in an emergency (say, your car breaks down) or that you can use for a new car, a trip abroad or even a house. Kiplinger generally recommends that you have at least enough in a cash reserve to cover your expenses for six to 12 months. Savings accounts are paying almost nothing right now, but you can eke out 1% or so in top-yielding accounts.

2) Build a solid base. For longer-term money that you don’t need right away—such as money in your 401(k) plan or IRA—you can afford to take risks in the stock market. The best thing to do when you’re starting out is to stick with mutual funds, which let you spread your risk—or diversify—by investing in a lot of different stocks.

The best funds to start out with, in my opinion, are index funds, which try to match a particular benchmark, such as the broad-based Standard & Poor’s 500-stock index or a total stock market index. Another benefit of index funds: They have very low fees, which means more of your money is working for you and not for the company that manages the fund.

Note: Peter, you asked about exchange-traded funds, or ETFs. An ETF is a kind of index fund. There are hundreds of ETFs that invest in all kind of indexes, some well known (such as the S&P 500) and some so obscure that you’d never need them. They are popular because their fees are even lower than those of index mutual funds, and you can trade them throughout the day like stocks. We’ve compiled our favorite ETFs into the Kiplinger ETF 20.

3) Aim for a target. Another broad-based way to invest is a target-date fund, which you probably have access to through your 401(k) plan. That’s a one-stop fund with a mix of stocks, bonds and other assets that are tied to the date of your retirement and gradually become more conservative as that date approaches. If you go this route, a target-date fund is probably all you need.

4) Add a little spice. With actively managed funds, managers use their own judgment to try to get returns that beat the stock market. That’s tough to do, and some managers are better at it than others. The trick is to pick the best ones that have staying power. At Kiplinger, we try to do this for you by choosing the Kiplinger 25, our 25 favorite actively managed funds. If you have index funds as a base, you can use actively managed funds to complement your portfolio.

5) Take a flier on stocks? In some ways, stocks are the most fun to invest in, but they also require a lot of research to choose the right ones. And, of course, if you invest in any single stock, you’re taking on more risk than if you invest in a mutual fund that holds shares in many companies. For someone in your position, I’d recommend starting with a solid fund foundation. Then, if you have extra money and want to take a flier on a stock (or stocks), you can do that.

There’s a lot more, of course. But I think this gives you a good overview of the basics, and I hope it helps.

Love,

Mom

In the short run, the stock market is a voting machine, said Benjamin Graham, considered by many to be the ultimate investing sage. But in the long run, it’s a weighing machine -- over time a company’s shares will command the price its business prospects deserve, measured by such basic yardsticks as profit growth, balance-sheet strength and management vision.

For much of 2011, the stock market behaved like a gigantic voting booth. And the effects have been dizzying.

What can you expect from stocks in the New Year? Keep an eye on these benchmarks to gauge where the market is headed next.

WHAT IT IS: The average of daily closing prices of Standard & Poor's 500-stock index over a period of time.

WHY IT MATTERS: Many analysts draw the dividing line between bear and bull markets by looking at the moving average.

If the S&P 500 is trading above its moving average, the thinking goes, it’s a bull market -- time to invest. If it moves below the average, it’s a bear market.

WHAT IT SAYS NOW: In early November, the S&P 500 traded just below its 200-day moving average. But it’s worth noting that in late October, after one of its best months ever, the index managed to move above its 200-day average for a few days.

THE TAKE-AWAY: We’re not out of the woods yet.

WHAT IT IS: A monthly gauge of how consumers feel about the economy and their personal finances.

WHY IT MATTERS: Consumer spending accounts for 70% of the country’s gross domestic product. When consumers are worried about the future, they spend less. When they’re optimistic, they spend more. A rise in spending could help revive the economy and lift the stock market.

WHAT IT SAYS NOW: In early November, the index plunged to 39.8, the lowest level since March 2009 (when the last bear market bottomed). But consumer spending rose in September, following modest gains in July and August, according to Commerce Department data.

THE TAKE-AWAY: Consumers are wary, but possibly gaining confidence.

WHAT IT IS: The number of initial claims for unemployment benefits nationwide, reported weekly by the U.S. Department of Labor.

WHY IT MATTERS: Basically, the higher the number, the weaker the economy. When claims decline it’s an early indication that the pace of layoffs is slowing, which is a good sign that executives are becoming more confident.

WHAT IT SAYS NOW: Unemployment is stuck at 9% and is expected to remain there for much of 2012. But the number of jobless claims has been coming down -- albeit in a jagged line. Nearly 400,000 people filed for unemployment in late October, an improvement over a year ago, when it was about 450,000.

THE TAKE-AWAY: It’s a far cry from 312,000 -- the average number of claims in 2006, when times were good.

WHAT IT IS: The dollar is the world’s premier currency, and its strength or weakness has an impact on our economy and the stock market.

WHY IT MATTERS: In recent years when the dollar has strengthened -- as measured against a basket of other key currencies, including the yen, the euro and the British pound -- the U.S. stock market has dropped. And when the dollar has been weak, the S&P 500 has risen.

WHAT IT SAYS NOW: Despite the long-term trend of a weaker dollar, the currency strengthened in late August and climbed through September -- just as the U.S. stock market plunged. But in October and early November, the dollar weakened again -- and the stock market regained some ground.

THE TAKE-AWAY: The dollar’s recent moves bode well for the market.

WHAT IT IS: Stock markets in developing nations.

WHY IT MATTERS: As you can see from the chart, the stocks of emerging markets and U.S. stocks move roughly in tandem. However, the growth of the consumer class in emerging markets has fueled sales for many U.S. companies, so strength in the stock markets of countries such as Brazil, China and India bodes well for the stocks of companies in developed markets.

WHAT IT SAYS NOW: Emerging markets have been a sea of red ink for the past year. But in October, the MSCI Emerging Markets index rallied 13.3%, which coincided with a 10.9% gain in the S&P 500. China, the world’s growth engine, recovered 15.2% in October.

THE TAKE-AWAY: It’s too soon to say whether this rally will persist, but the recent action in emerging markets is a good sign for U.S. stocks.

WHAT IT IS: The price of the index divided by the sum of the operating earnings per share of the companies in the index.

WHY IT MATTERS: Earnings relative to the price of the S&P 500 offer a look at how investors view the prospects for corporate profits. A falling P/E could mean investors are losing confidence in the earnings outlook and the overall economy; a rising P/E means they’re bullish.

WHAT IT SAYS NOW: The S&P’s P/E is now 13, well below the 20-year average of 19 (based on estimated 2012 earnings, the P/E is 12).

THE TAKE-AWAY: The ratio is in a historically low range, driven by investor fear and uncertainty. If analysts trim their earnings estimates -- as they have of late -- the market’s P/E will rise. But investors may lose confidence, prompting them to sell stocks and causing the P/E to fall.

Kiplinger's Economic Outlook

SPECIAL REPORT: Be a Better Investor

SLIDE SHOW: 10 Quirky Economic Indicators

SLIDE SHOW: 10 More Quirky Economic Indicators

SPECIAL REPORT: Investing Outlook 2012

We pick useful tools to help you invest wisely. Find out the number-one investing portal, top-performing stock and fund newsletters, the best books, where to go for bond data and more.

• Online tools and resources
• Books, newsletters and more

Online tools and resources

BEST OVERALL ONLINE INVESTING SITE

Yahoo Finance

Many have tried, but none has been able to match the depth and utility of Yahoo's investing portal (http://finance.yahoo.com). Type in a ticker symbol and you are instantly linked to virtually every public piece of information available about that particular stock. In fact, the strength of the Web site is its clean design and smart linking, which allow you to find what you need without getting lost -- or suffering intrusive ads.

BEST FREE STOCK SCREENER

Yahoo Finance

Yahoo's screener (http://screener.finance.yahoo.com/

newscreener.html) packs more than 150 criteria into an easy-to-use, downloadable tool that works on Windows- and Mac-based computers. The criteria cover all the bases, including profitability measures, balance-sheet data and income-statement numbers. Or, you can choose from 19 preset screens to find a selection of, say, large-company stocks that are cheap and growing.

BEST BOND INVESTING SITE

Investinginbonds.com

The Bond Market Association, a trade group, provides a useful guide to this sometimes inscrutable business. You'll find all the basics here, plus calculators to help you convert yields into prices and vice versa, a wealth of data and indexes categorized by market (municipal, government, corporate and mortgage), and timely price information on individual issues.

BEST FORUM TO CHAT WITH OTHER INVESTORS

ClearStation.com

Stock message boards are essentially online hangouts where users hash over their favorite -- and not-so-favorite -- stocks. Postings can be insightful, but they can also be freewheeling and frivolous. ClearStation.com, run by E*Trade Financial, lets you search for posts by ticker symbol. A rating is assigned to the author of each post, based on what other users think of the author's picks and comments.

Books, newsletters and more

BEST INVESTING BOOK OF ALL TIME

The Intelligent Investor

Before Benjamin Graham, stock investing was about as scientific as astrology. Graham, who died in 1976, pioneered security analysis and propounded the notion that a stock's price should have some connection to the underlying company's actual worth. He condensed his vast knowledge into The Intelligent Investor, a book first published in 1949. Among his timeless suggestions: Seek to buy a stock at a price that is well below the company's intrinsic value. The Intelligent Investor dispenses timeless advice for less than $20. Now that's good value.

FIRST-PERSON PICK:

BEST INVESTING MOVIE

Other People's Money

A vocal faction here at Kiplinger's voted for "Trading Places," the classic commodities comedy with Dan Aykroyd and Eddie Murphy. And Michael Douglas's Oscar-winning performance and "greed is good" tagline made 1987's "Wall Street" perhaps the most memorable cinematic portrayal of big-business morality.

But my choice is "Other People's Money," which offers a more nuanced and satisfying view of business. Danny DeVito, as corporate raider Lawrence "Larry the Liquidator" Garfield, is stereotypically ruthless and self-centered as he tries to take control of an old-line New England manufacturer of cable and wire. Gregory Peck, as CEO of the targeted company, is wonderfully caring and devoted to his longtime employees. But the company's a financial mess, and he's clueless about his obligations to shareholders.

So who's really the bad guy? Credit director Norman Jewison for avoiding a pat answer to that question while managing to offer up a Hollywood-style happy ending.

--David Landis

BEST COMTEMPORARY INVESTING BOOK

Common Sense on Mutual Funds

Want to know just how hard it is for fund managers to beat the market? Pick up Common Sense on Mutual Funds, by John Bogle, founder of the Vanguard Group and creator of the first mutual fund designed to track Standard & Poor's 500-stock index. Bogle's 1999 manifesto laments that his pleas on behalf of low-cost index investing are "not yet sufficiently fashionable to procure them general favor." The ensuing years, though, have been marked by the rise of exchange-traded funds, which in many cases undercut the expenses of even traditional index funds. Bogle's cogent criticism deserves at least some of the credit.

BEST FUND NEWSLETTERS

NoLoad Fund*X

No-Load Fund Analyst

For sheer performance, you can't do much better than buy the picks of NoLoad Fund*X, edited by Janet Brown. If you had followed Fund*X's advice over the past ten years, according to Mark Hulbert, the doyen of investment-letter judges, your fund portfolio would have returned a sizzling 18% annualized. Fund*X (www.fundx.com) costs $179 a year.

If it's education you seek, try the wonderfully erudite No-Load Fund Analyst. Editors Stephen Savage and Ken Gregory interview leading managers and assess their funds. The letter (www.nlfa.com) costs $600 a year.

BEST STOCK-PICKING NEWSLETTER

The Turnaround Letter

George Putnam began a love affair with companies that flirt with bankruptcy in the late 1970s. Since 1986, his newsletter has been handicapping the odds that troubled companies will stage comebacks. Over the past 15 years, according to The Hulbert Financial Digest, the monthly letter's picks have returned an annualized 18%. The letter costs $195 a year. For a sample issue, visit www.TurnAroundLetter.com.

BEST INVESTING TV SHOW

Nightly Business Report

This PBS stalwart is welcome relief from the manic pace of daytime business news shows. After the markets close, hosts Susie Gharib and Paul Kangas run down the day's top stories, dishing out key market statistics in digestible doses. In-depth pieces and interviews with newsmakers add much-needed perspective. It's a no-frills half-hour that goes down well with an evening cocktail.

BEST PLACE TO RUB ELBOWS WITH BIGWIGS

Morningstar Investment Conference

Each summer, the heavyweights of the mutual fund world -- such as Legg Mason's Bill Miller and Loomis Sayles's Dan Fuss -- descend on Chicago for a three-day powwow to talk stocks and investment strategy. Next year's conference will be held June 27 through June 29. Admission, which covers all the panels and meals, is $695. For details, call 866-839-9729.