Selecting investments for your financial plan is scary stuff. There are about 10,000 publicly traded stocks and a similar number of mutual funds. A lot of junk is out there just waiting to snatch your hard-earned dollars.

How do you separate the good from the bad? I'll tell you shortly. But before I do, let me underscore the following:

That you invest is much more important than in what you invest.

Stated another way, you become a successful investor not because of the stocks you choose, but because you choose to invest in stocks.

Approaching stock picking with this concept in mind frames the stock-selection process in a less intimidating way. You don't need to hit a quick home run after home run in order to get to seven figures. Singles will do just fine. Singles and time.

In fact, I would argue that hitting a home run may do you more harm than good over the long term. Indeed, I would rather have a stock that rises 15 percent per year than a stock that jumps 80 percent after three months. I'm crazy, right? I don't think so. The stock that jumps 80 percent in three months forces you to make a decision, and that decision is usually to sell. After all, who wants to lose an 80 percent profit in three months. That's a home run, right? The problem is that you may be selling a stock that ultimately rises 500 percent or 1000 percent. Oh sure, you can try to play the trading game and buy back the stock at a lower price. But what if the stock never declines? Or when it declines, you don't buy because you think it will decline even more?

Give me a stock that rises 15 percent per year, year after year after year. A stock that rises 15 percent per year doesn't force me to make a bad decision. It's an easy hold. A stock rising 15 percent per year doubles every five years or so. Over 25 years, a stock that rises 15 percent per year doubles roughly five times. That means a $10,000 investment becomes $330,000.

That's how you get rich hitting singles.

Quality, Quality, Quality

One way to keep your money in play for a long time is to focus investments in quality companies. A quality company shows its spots in several ways:

		Quality companies dominate their industries. The global marketplace is becoming an increasingly competitive place to do business. Foreign competition. The Internet. The Technological Revolution. All of these factors make it doubly difficult for small, undercapitalized companies to compete on a global scale. Size matters, probably more than ever. I know the Internet is helping many smaller companies compete in certain markets, such as retail. My guess is, however, that the eventual giants of the Internet are not those now dominating it. It will be the big elephants, Wal-Mart, IBM, GE, Disney — companies with the size, scale, financial firepower and brand power to overtake smaller players in these markets. If you bet on a third- or fourth-tier player in a particular industry making a run at the leaders, you are making a bet with long odds. Buy the industry leader. It may not be the sexiest approach, but it's probably going to be the most profitable.
		Quality companies play in growing markets. You want your money in industries that will grow consistently during that 20-year period. I prefer putting my money into companies in growth industries, where I'm not forced to buy and sell frequently to make money. I can let my stock positions grow in line with the growth of the industry.
		Quality companies have consistent profit records. Stock prices follow earnings. Let me repeat that statement. Stock prices follow earnings. The relationship between stock prices and earnings can get out of whack in the short term. Over the long haul, however, a rising earnings stream leads to higher stock profits. If you buy that statement — and you should — you should buy stocks with consistently rising earnings streams. How do you find stocks with rising earnings? It's helpful to look at a company's track record. Past performance is not always indicative of future results. But it's probably the best tool an investor has to gauge the likelihood of future profit increases. If a company has boosted profits every year for the last 10, chances are high that growth will continue.
		Quality companies have sound financial positions. You want to own companies that will be around for 20 years or more. One way to assure that a company won't be around is poor finances. You want companies to have strong cash flow and manageable debt. Long-term debt should not be more than 60 percent of total capital. (Total capital is a company's long-term debt plus shareholder equity.) These numbers are available in the firm's financial statement. I'll make an exception to this rule occasionally. Still, a company with strong finances can stay in the game even when business turns south.
		Quality companies have above-average dividend growth. Dividends are the cash flows stocks throw off to their owners. Dividends are paid out of a company's earnings. I own stocks that pay dividends. I own stocks that don't pay dividends. All things equal, a stock that pays a dividend is probably a better way to go for long-term investors. Dividends compound over time to provide nice returns. Dividends also provide a hedge against market declines. Actually, what truly matters is not so much the absolute dividend but the ability for the dividend to grow over time. If I'm choosing between a company with a big dividend but little dividend-growth prospects or a company with a small dividend and great dividend-growth prospects I'll choose the faster dividend-grower every time. Over 20 or 30 years, a fast-growing dividend has huge implications for a stock's total return.
		Quality companies are companies that you would want to own, lock, stock and barrel. I like to pick stocks by asking myself the following question: Is this a company that I would like to own? In other words, if I had Bill Gates-type money and could buy the entire company outright, is this a company that I would like to buy? I think if investors approached stock picking with an owner's mentality, they would make wiser investment decisions. They wouldn't fixate on stock charts or market gossip or hot tips or quarter-to-quarter results. They would look at the big picture. They would ask themselves better questions --Is this company involved in an industry that has good long-term prospects? How big a role does the government play in this industry? Is the work force unionized? How long will it take me to earn back my investment? How strong are my competitors? Does this company have a defensible market niche? These are questions that smart investors ask when considering a stock purchase. You should do the same.

Stay Away From What You Don't Know

A major part of investment success is keeping your money in play. When money is in play, the power of compounding can work its magic. You keep money in play by avoiding huge mistakes. One way to avoid big mistakes is by refusing to venture into the investment unknown. When you invest in small, speculative, high-risk companies, you venture into the investment unknown. Sometimes the payoffs can be huge. More often than not, however, the stocks end up taking your money out of play.

You have a much greater chance having a small, unknown stock blow up on you than a stock like General Electric or Bristol-Myers Squibb. And if GE or Bristol-Myers declines sharply, your chances of a rebound are much greater than high-risk situations rebounding following a crash.

Bottom line: When you invest in speculative stocks, you are swinging for the fences. Unfortunately, you'll likely strike out nearly every time. Remember: You don't have to hit home runs to have a seven-figure portfolio. You just need to keep your money in play. Time and compounding will do the rest.

Buy Quality Stocks On Declines

What do you do if you overpay for a quality stock and it declines sharply? Buy more and wait. Individual investors can afford to be patient with their investments. The clock is not running on your performance. You can buy quality stocks that have been beaten up and wait for the inevitable turnaround. The rebound may take six months. It could take two years. Eventually, however, quality companies usually show their true colors.

Whether you know it or not, being able to buy quality stocks on declines is a huge advantage you have over most professional investors. Most professional investors are reluctant to buy stocks that may be dead money. Dead money hurts short-term performance. Short-term performance garners assets. Fees on assets pay the bills.

This focus on short-term performance actually enhances the advantage you have as a patient investor. Long-term buying opportunities are being created almost daily. A quality stock misses its earnings estimate by a penny and loses 20 percent of its value in a day. Missing earnings estimates is not taken lightly by professional investors and usually signals the company may have some trouble over the next few quarters. Professionals can't afford to own stocks having trouble.

You can, however, if it is a quality company and you're willing to wait out the rebound.

If your investment focus is on buying quality, you must be willing to buy quality stocks when they're down. That's how you maximize the power of a long-term growth strategy.

Conclusion

When buying individual stocks, the best approach is to focus on quality. That is the pond in which everyday millionaire investors fish. That's the pond in which you should fish, too. Remember: You don't need your stocks to generate 50 percent annual returns in order to get rich. You don't need to find that one cheap stock among the 10,000 publicly traded stocks. You don't have to take huge risks in speculative stocks to grow your portfolio. You can do just fine keeping your money in play, buying the tried and true, and taking your potential 10 percent or 15 percent annual gains.

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