Late September 2008 was hardly an opportune time to start investing in the stock market. Since that time, the Morgan Stanley Capital International All-Country World Index (MSCI World Index) is down 27 percent. Meanwhile, the S&P 500 has lost 24 percent.

September 22 marked the launch of the New World 3.0 Model Portfolio, and since then it’s returned 17.5 percent. That’s an extraordinary 44.5 percentage points better than the MSCI World Index, and we beat the S&P 500 by 41.5 points.

When we began putting this Portfolio together, we started with two premises. First, we’re 100 percent long in stocks at all times, with no cash, bonds or hedge positions. Second, we’re building the Portfolio by systematically picking up companies backed by the highest-quality businesses we can find. These businesses are wired into the ongoing transformation of global systems to a 21st century economy and polity.

Given the market’s extreme turbulence, we’re willing to accept the risk that our buy recommendations could fall further in the near term. Our objective is to buy and lock in superior long-term returns by buying strong companies at low prices.

Those remain the premises on which the New World 3.0 Portfolio is based. We’ve continued to add several new holdings a month from three groups: Red, White and Blue, US-based companies that are dominant in their sectors and using new methods and technologies to tack towards the 21st century future; Beyond Our Borders, equally dominant companies from elsewhere in the world that are also positioning to dominate the future; Cutting Edge Technology, companies drawn from a global universe that are creating the new processes on which the 21st century world will run; and Metals and Materials, the building blocks of all economic growth.

In the first weeks of the advisory, we were able to buy quite a few of our holdings at very low valuations, relative to their business prospects. Nonetheless, with the US financial system melting down, even good companies selling cheaply lost ground, and we found ourselves down more than 20 percent as of the Oct. 10 close.

Here in early January, we’re still underwater on several positions. But overall we’ve steadily gained ground. The overall portfolio reached breakeven again in early November, then lost ground before finally pushing to double-digit gains by mid-December.

We’ve outperformed the overall stock market by a wide margin for one major reason: We’ve focused only on strong and growing companies. Even these went down when the overall market crashed. But the damage was far less severe than for most stocks, and they’ve been among the first to recover as confidence has returned and money has come back into the market.

Looking ahead, the global economy and investment markets face some pretty steep challenges. The credit market has unfrozen to some extent, but conditions are still tight, particularly for less creditworthy outfits and individuals. Growth has noticeably slowed, even in the developing world, where it had been robust only a few months ago. And unemployment is starting to creep up everywhere.

Market history shows that massive stimulus will eventually ignite economic growth. And the money being pumped now into the system worldwide–courtesy of both monetary and fiscal policy, i.e. government spending–is well into record territory. President-elect Obama’s plan to spend USD1 trillion, for example, is many times the monetary injection of Franklin Roosevelt’s New Deal during the Great Depression of the 1930s, both in nominal terms and relative to the size of the US economy. That kind of money wave argues for at least some recovery in the economy for 2009.

As for individual stocks, performance will boil down to how underlying businesses perform as long as the economy remains weak, and how well they’re positioned to take advantage of the ultimate recovery. With much of the spending in the US, Asia and even Europe targeted for infrastructure, New World 3.0 recommendations are well placed to continue their outperformance.

For example, our most recent addition, Insituform Technologies (NSDQ: INSU), introduced in my December 31, 2008 post Curing Water’s Old World Hangover, is well placed to capitalize on shovel-ready projects in water systems, namely replacing and remediating damage to water pipes and mains worldwide.

Look for more of this type of recommendation in coming weeks. Meanwhile, all the stocks in our New World 3.0 Portfolio table remain buys at or below the prices listed in the “Advice” column.