Why You Should Buy Boring in 2012

Just a couple months into 2012, investors have already been on the receiving end of a significant rally. So far this year, the S&P 500 has ratcheted more than 9% higher – and small-cap indexes like the Russell 2000 have pushed into the double digits…But a rally is a dangerous time to be an investor. That’s because when everything’s moving up, it’s all too easy to buy into the over-hyped stock stories of the year and completely forget about fundamental value and technical strength — the two factors that actually lead to consistent investing profits. That’s why this year, you should be buying boring. Let me show you real-world examples of why that’s true, using the Penny Stock Fortunes portfolio that Greg and I manage for our readers…Rewind a few months ago to an unseasonably warm January morning in Charleston, S.C., when the mill workers at Charleston Kraft show up for their shifts. The mills sits about 200 yards off of the main road — down a private drive with a gate and palm trees at either side. The big blue building itself isn’t particularly interesting — your standard industrial operation — nor is the business. Charleston Kraft makes paper, the heavy brown stuff and cardboard stock used to make everything from beer cartons to the Happy Meal boxes at McDonald’s.Boring factory. Boring business. Not exactly the sort of opportunity that most investors would jump at…But behind those palm-lined gates was the key to one of the biggest-gaining stocks of the year. You see, Charleston Kraft was acquired by KapStone Paper and Packaging Corp. (NYSE:KS) in 2008, effectively tripling the size of KapStone’s business and providing a phenomenal value opportunity for investors who were willing to “buy boring.” By the time we recommended selling shares of KapStone back in June, shares had rallied 205.8% from our buy price — more than tripling the value of any dollar our readers invested.KapStone was just one example of a boring stock that produced anything but boring returns in 2011. Five Star Quality Care (NYSE:FVE) was another…Five Star operates senior living facilities spread throughout the country, a business that could hardly be described as earth-shattering or exciting. Five Star’s properties are nice. To be sure Greg and I took an in-depth tour of the firm’s facilities, in addition to an in-depth look at the company’s financials. Five Star facilities boast indoor pools, granite countertops in senior apartments and senior staff members who know residents by name. It was all very impressive. But the next Facebook Five Star was not.Not that it mattered — we sold shares in 2011 for 94% gains.There was no shortage of exciting stocks last year. In total, 2011 nearly doubled the number of IPO announcements that we saw in the previous year, and investors bought hyped-up names like LinkedIn (NYSE:LNKD) and Groupon (NASDAQ:GRPN) with both fists. But the “hot stocks” they talked about on CNBC last year weren’t the ones that performed the best — instead, it was the boring stocks.All told, ignoring the hype and investing in boring names helped our public portfolio to beat the broad market cumulatively by nearly 38% over the last three years.And we think that the results will be every bit as impressive in 2012, as investors start breaking their own rules and going after the “sexiness” of IPOs and fundamentally-weak movers instead of bargain-priced boring stocks.