Invest Like Tony Soprano

I was checking my daughter's investment account recently, and I realized that I'm kind of an idiot.

I'd forgotten that I'd bought a dozen or so shares of Motley Fool Stock Advisor recommendation Quality Systems for her account. I hadn't been tracking the stock or news surrounding the company. I felt like a real idiot until I checked my cost basis and realized that the investment was up more than 180%.

So maybe we idiots have it right.

Warren Buffett: Idiot
Every day, I hear stock jocks gloat and die with each 10% rise or fall in their stock price. But there's a big difference between stock jocks and master investors: Master investors sacrifice short-term gains to build real wealth.

As the head of Berkshire Hathaway, master investor Warren Buffett has said that he expects to "keep permanently our primary holdings." The man has directed Berkshire to an incredible 40-year compounded annual growth rate of 21.9% by doing all his work on the front end -- identifying superior companies -- and then just forgetting about the prospect of selling.

Buffett has never sold a share of Berkshire Hathaway, and he says his performance would have been even better than 21.9% if he'd never sold a single share of any of his investments. That may sound like an idiot's approach, but those aren't the results of an idiot.

Shelby Davis: Idiot
Shelby Davis turned $50,000 into a fortune greater than $800 million during a lifetime of saving and investing, landing him on the Forbes list of the richest Americans before his death.

Davis is frequently called a B-list money manager, but there's nothing B-list about his returns. Like Buffett, he bought stocks to hold and said before he died that he, too, would have been better off if he had never sold a single investment.

Tom Gardner: Idiot
Well, not really, since he's the one who found Quality Systems in the first place. And if I'd bought when he first recommended the company and not waited, my investment would be up more than 550% -- significantly more than the paltry 180% my daughter has earned. But Tom recently told me that his biggest investing regrets are the companies he's sold over the years.

Tom's sold 12 positions from his Stock Advisor portfolio: Hypercom, Daktronics, PossisMedical, KenseyNash, Websense, Sanderson Farms, Trex, Regis, and two positions in both Affiliated Managers Group and Whole Foods. Of those, Kensey Nash, Daktronics, Hypercom, Trex, and Whole Foods are significantly higher than the price at which he sold them. In the case of Whole Foods, the 28% gain Tom realized when he sold would be a 180% gain today. Whoops. His Stock Advisor picks are still smoking the market by a wide margin, but you can imagine his regrets on giving up those eventual winners.

The buy-to-hold philosophy really can test your short-term patience. Take Ameritrade, for example. Back at the end of 2002, Ameritrade's stock was getting hammered. The market at large was down, and individual investors burned by the tech meltdown weren't trading at their 1999 levels. If you'd purchased Ameritrade shares at the end of 2000 because you were confident in the underlying business and held through the rough patch in 2002 and 2003, you'd have nearly doubled your money, and you'd be part-owner of a company that just recently acquired one of its competitors.

Ameritrade's hardly the lone example, of course -- just take a look at the five-year results of some other volatile companies:

Find superior companies
As you can see, there can be some danger in the buy-it-and-forget-it approach -- Monster Worldwide fell hard when the Internet bubble burst, but has been slowly and surely working its way back to its circa-2000 prices. Yet even among this group of twice-more-volatile-than-average companies, the buy-and-forget approach yielded 27% annualized returns. That beats the market's annualized 1% return over the same time period by a very wide margin.

The key to such an approach, of course, is identifying and buying into superior companies with superior prospects like Stock Advisor recommendations NVIDIA and, of course, Quality Systems. That's where Tom -- not to mention his brother and Fool co-founder, Dave -- help me.

I read about Quality Systems in Stock Advisor -- our newsletter in which Tom and Dave go head-to-head to find the best stocks anywhere -- and the business made sense to me. As Tom wrote, the company's software helps private-practice physicians automate administrative and diagnostic records. Growing industry. Leader in the field. Smart business approach. Yup, makes sense. So I bought a small chunk and forgot it. That blend of magic and ignorance has turned my investment into a thing of beauty.

Tom and Dave are finding companies like that all the time -- since the newsletter's inception in April 2002, David's picks are up 50%, and Tom's are up 69% compared with the S&P's 18% -- and I plan to keep adding them to my daughter's portfolio before letting them slip once again from my consciousness.

To find the companies you might want to buy and forget, give Stock Advisor a whirl for 30 days for free. You'll get two stock recommendations per month and access to all of David and Tom's 70-plus recommendations. As always, the Fool's money-back guarantee stands behind the offer.

As for Quality Systems, I believe I've found a superior company, and my daughter and I will do well to heed the wisdom of Buffett, Davis, and David and Tom Gardner and, in the words of Tony Soprano, just "Fuhgeddaboudit."

This article was originally published on July 22, 2005. It has been updated.

Roger Friedman is the managing editor of newsletters and the author of Nipple Confusion, Uncoordinated Pooping and Spittle: The Life of a Newborn's Father . He (and his daughter) own shares of Quality Systems. Whole Foods is a Stock Advisor recommendation. The Motley Fool isinvestors writing for investors.