A Simpler Way to Wealth

Wouldn't it be great to wake up one morning and discover a wad of hundred-dollar bills in your pants pocket?

Everyone dreams of waking up someday in a pile of money, or comfortably retired, or with an abundant investment portfolio. I dream of waking up on a yacht in the tropics with drinks served by Lynda Carter in full Wonder Woman garb (including the Lasso of Truth), but that's just my personal financial fetish.

For many, financial affluence is more than a dream for dream's sake: It is a serious goal in life that demands hard work. But surprisingly, some accomplish it with far less work than you may think. In trying to drive wealth through investing, less attention paid to your stock portfolio and less "working at it" can yield far more profitable results.

Where are we going with this?
Investors are often their own worst enemies when it comes to managing their portfolios. How many times have you rashly sold a fundamentally good company because it seemed too high, only to see it go higher? And then double. And double again and again. Immediate access to information and easy online trading tools can lead investors to trade stocks on any whim, impulse, or fear. But the price of this freedom is your eventual net worth.

Studies such as those done in the 1990s by business school professors Brad Barber and Terrance Odean at the University of California, Davis, confirm that investors too frequently shoot themselves in the foot thanks to the ease of online trading. They suggest that investors would be better off buying and holding companies, rather than trying to outsmart the market and time stock swings.

Here at the Fool, we've shown many times that buying great companies and holding them is far superior to frequent trading and trying to time the market. For example, by making 86% in Intuitive Surgical (NASDAQ:ISRG) by just holding it over five months rather than buying when it seemed cheap and selling when it zoomed too high, too fast. One example of a well-intended trading plan cut profits down to 59% even before the extra bite of taxes and trading fees.

Take the macro view
Here's how several popular -- and controversial -- investments have done since their IPOs within the last decade:

Although each of these companies has blown away the market, I'd be willing to bet that very few investors (save insiders) have held any of these stocks from the beginning. I honestly could not say that I would have stuck it out -- I've been sucked into all the triumph and horror these companies have endured as analysts and investors microanalyzed every event of the past several years.

I also know investors who have managed to lose money in these companies -- I'm one of them, and maybe you are, too. I would have been far richer, and wasted much less time following tickers, if I had simply bought and then forgotten about these great companies and their tremendous potential.

The Rip Van Winkle school of investing
One way to foster the discipline to hold stocks is to buy them in Drip accounts that essentially force you to take a much longer view. Since it's more cumbersome to fill out requests by hand, track down certificates, and lick stamps than to just click a mouse a few times, I've held shares in companies such as Coca-Cola (NYSE:KO) and Campbell Soup (NYSE:CPB) that I was tempted to sell through several bad years for each. If only I could command the same patience on all my investments.

Another great way to avoid the short-term view that kills portfolio performance is to focus on businesses, not stocks. David and Tom Gardner spend hours every day doing business analysis on companies for their Motley Fool Stock Advisor service. The newsletter highlights amazing companies with attractive prospects so you don't have to waste time "picking stocks." Instead, you're served up two great businesses each month that are trading at reasonable valuations. To check out which companies they recommend you hold for the long haul (recommendations that to date are beating the market by 40 percentage points), click here for a no-obligation, 30-day trial. It's less work than you think.

Fool contributor Dave Mock momentarily forgot that his dream was actually spending quality time at home with his wife, not with a 1970s superbabe. He owns shares of Coca-Cola and Campbell Soup. The longtime Fool is also the author of The Qualcomm Equation . eBay, Yahoo!, and Amazon.com are Stock Advisor recommendations, and Coca-Cola is an Inside Value recommendation. Intuitive Surgical is a Rule Breakers pick. The Motley Fool has adisclosure policy.