Two of the best indicators of superior stocks are high insider ownership and long executive tenure. Phil Knight, for instance, founded Nike in the 1960s. He was CEO until 2004, has been a director since 1968, and continues to hold a substantial chunk of stock. Nike returned more than 19% annually from 1989 to early 2009.

Jeff Bezos founded in 1994 and has served as chairman ever since. He's also been the CEO since 1996 and has often paid himself a relative pittance compared with the millions that many executives pull down in salary. Why? Because all of his worth is tied up in the empire he's building. He owns a big fraction of the company -- shares that have appreciated to the tune of 25% annually since 1998.

Drew Industries CEO Leigh Abrams has been at the company for more than 30 years. He and the chairman continue to own millions of dollars in stock. It's not a coincidence that the company has increased 200 times in value over the same time frame.

Nike, Amazon, and Drew aren't alone. Microsoft, Oracle, Best Buy, Apple, and many more of the stock market's biggest winners share the same pattern of success.

Insider ownership and management tenure are strong indicators of success. But they apply only to equities, right? Wrong.

Financial all-stars
We have three rules of thumb for good managers:

  • Tenure. Invest with managers who have been investing for years, if not decades, instead of with managers who are still learning on the job. Make sure they've been on the job in both bull markets and bear markets.
  • Performance. Has the manager outperformed the market over the long haul? Any manager can have a year or two of outperformance, but consistent outperformance is something worth noting.
  • Consistency. Has the fund been using the same investment philosophy throughout its history, in both good and bad environments, or does it change its stripes to fit the latest investing fad? You want a manager who sticks to his or her guns no matter what, not someone who tries to be all things to all investors.

If those criteria are met, then stay the course -- the fund will probably pay off in spades.

When things go wrong

Even the best long-term managers have periods of short-term underperformance. And even more importantly, short-term underperformance didn't prevent them from producing excellent long-term results.

The key is that if nothing fundamental has changed at a fund -- it still has the same experienced team at the helm, and it follows the same value-oriented investment approach that has produced a great long-term track record -- then it should recover when the market does. In fact, smart managers see down markets as a chance to snap up attractive stocks that have fallen on hard times -- thereby setting their funds up to return to outperformance when the market recovers.

Investors who abandon such funds during periods of short-term underperformance will probably kick themselves after a recovery.

The Foolish bottom line
Investing for the long term isn't easy, but it's the single best thing you can do for your portfolio's health -- and that means not getting rattled when your managers have short-term stretches of underperformance. Find the best money managers out there, and stay with them for the long haul.

Let's take a closer look at why experience counts so much for a fund manager.