How to Discover the Next Decade's Best Stocks

In a world where information flows so quickly that today's breaking news could be hopelessly out of date tomorrow morning, taking a long-term view of your investments seems almost quaint. But rather than putting you at a competitive disadvantage, investing for the long term can make your job easier -- by filtering out the torrent of unimportant data and news items and forcing you to focus on what really matters to the businesses you invest in.

Long-term strategic thinking is perhaps the most contrarian position you can take. Nowadays, you'll find huge groups of people who have every incentive to think mainly about short-term results. Consider:

• During good times, corporate executives got rich rewards for delivering strong financial results -- regardless of the risks they were taking. In many cases, no one seemed to realize just how risky those money-making strategies were until they stopped working.
• Similarly, fund managers and others in the financial industry had to deal with investors who weren't always willing to put up with short-term underperformance in the hopes of catching up in the long run. Without their own money at risk, fund managers had little to lose by taking huge bets in the hopes of making up for past mistakes or delivering top-notch returns.

You can see another reflection of the fast pace of the investing world by looking at how trading volumes of stocks have increased geometrically over time. According to statistics published in the Wall Street Journal, over 80% of companies in the S&P 500 had greater trading volume over the past six months than their total shares outstanding. Here are a few extreme examples:

Source: Yahoo Finance.

With so many traders buying and selling shares so frequently, it's clear that there's a big contingent of shareholders out there at any given time who have absolutely no interest in what a company's long-term prospects may be. They're only hoping to profit from the next piece of news affecting a stock.

Ignore the noise
But when you think about it, trying to evaluate a company's changing prospects minute by minute is just plain silly. You can focus primarily on just a few sets of important information:

• Financial reports, which typically come out once per quarter. In some industries, such as autos and retail, sales figures come out on a monthly basis, but for broad discussions by corporate management of future prospects, they don't typically match up to the depth you see in quarterly filings with the SEC.
• Analyst conference calls, which usually follow quarterly financial reports.
• Company press releases, many of which are routine but some of which include important information to help you make future projections.
• Similar information for a company's competitors, to help understand the broader industry.

Not only will that primary information help you avoid getting bombarded by trivia, it will also force you to form your own opinions, rather than relying entirely on others for their views on a particular stock. Often, it's those outside views that trick you into changing your mind about a stock that you'd otherwise keep -- and which eventually produces great returns.

Also, notice what's not on that list: things like real-time stock quotes, for example. Whether stocks rise or fall in the absence of news and financial information doesn't matter much if you don't plan to sell your shares anytime soon. If you're convinced a company will be much more successful 10 years from now, you don't necessarily care what path its shares take along the way -- you can be confident they'll rise over time.

Be an investor
So if you're struck by all the clutter and chatter about actively traded stocks these days, do yourself a favor and tune out the cacophony of constant information. By instead paying attention only to what matters, you'll end up much better off in the end.

For more on how to be a better investor, read about:

• Why now is the opportunity you've been waiting for.
• These smart moves could fix your portfolio.
• Invest like Warren Buffett.