Quality and Fundamentals (Part 6)

Now with a brighter light at end of the tunnel, let’s begin today by addressing the topic sentence from first paragraph Part 5.

The difference between high-quality [growth] stocks [numbered Learn to Earn criteria here and Manifest Investing criteria penultimate paragraph here] may only be magnitude of growth/sales and/or management metrics (i.e. PTPM, ROE, and Debt-to-Capital). Necessary for the SSG methodology are stocks with good earnings predictability: also known as R^2 and historically “up, straight, and parallel.”

Per my rebuttal in Part 1, I do not believe a company needs to be of high-quality in order to be a solid investment candidate.

In my view, much of the latter boils down to whether value investing is a viable approach. Performance numbers from Part 2 are supportive along with the new (Sep 2025) CEO of BetterInvesting® Wayne A. Thorp, CFA. Thorp has a long history of teaching and analyzing the value strategies found in John Neff on Investing (1999). In his previous AAII work, Thorp developed the video education series “Fundamental Stock Screen Strategies” detailing Neff’s methodology.

Thorp’s interpretation of Neff’s value approach emphasizes identifying stocks with specific fundamental characteristics:

• Low price-earnings (P/E) ratios
• Total Return ratio: (Estimated Earnings Growth + Dividend Yield) / (P/E). Neff seeks double the market average.
• Solid forecasted earnings growth
• Value investing is unfashionable, but Thorp points out Neff significantly outperforms S&P 500 over long periods.

While at AAII in Feb 2025 (also see “From the CEO” in Dec 2025 BetterInvesting® Magazine), Thorp published insights arguing that growth and value investing are not mutually exclusive in support of a “Growth at a Reasonable Price” mindset (GARP—term also used at BetterInvesting®). This curriculum is a core part of the AAII Essential Investing video course.

So whether “high-quality” (meeting the magnitude thresholds) or not, value can be successful. Google AI, Wayne Thorp, and John Neff (I just finished reading) all agree on this. Paul Merriman, of the Merriman Financial Education Foundation would also agree since he has done much work/advocacy for small-cap value.

Finally, value stocks may pose good entry diversification to high-quality growth stocks. I often see latter in the BUY zone only when the market has a pullback or following some company-specific bad news (even a rare poor/disappointing quarter or more). Value stocks are likely less impacted by bad news since they are soured upon already. I’ve seen cases where companies with very little growth hang out near or in the BUY zone for long periods of time waiting for a surprising upside catalyst.

I feel good about using the SSG methodology to study both high-quality growth and value stocks alike.

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