But picking a good investment doesn't always have to be so complex. You can use simpler screen -- a checklist of just a few traits that are universally good markers of an appealing long-term holding.
Here are three key traits that will key you in to a good investment, regardless of the company's sector, whether it's considered a growth or value stock, or even whether it's a market favorite or a pariah.
1. A brand that's synonymous with the product
Technology companies largely rely on human capital for their ongoing competitiveness. Needless to say, people are highly unpredictable assets that can, and do, change quickly. So, products with an Apple logo will only stay popular so long as the mechanics and technology created by its people are cutting-edge.
In other words, it's the talent that made Apple (AAPL) what it is today. And in order to remain great, Apple needs to retain its best people and be better than its competitors in acquiring the top minds in its industry.
That's why, despite the company's incredible growth and ability to shape the future of multiple industries, Apple will never be as sound an investment as, say, Coca-Cola (KO).
Sure, Coca-Cola has an amazing manufacturing and distribution system, along with a super-secret formula to make its signature soft drink. But its true beauty as a company, a brand, and an investment, is that it has taken the simplest of ingredients and through brilliant branding turned its core product into one of the biggest, most recognizable brand names in the world (actually, the third biggest, according to Interbrand's 2013 rankings).
Other companies can slap their labels on bottles of sugar water. And plenty have. There will always be imitators and wannabes looking to peel off a piece of Coca-Cola's market share. But in the eyes of consumers across the globe, a Coke will always be a Coke, regardless of who's sitting in the corner offices at company headquarters.
A company like Coca-Cola isn't going to grow at amazing rates. An earnings report likely won't show a massive gain in earnings per share that no one saw coming. But as a long-term investment, there are few, if any, better businesses to own a piece of.
If you had invested $10,000 in Coca-Cola in January 1985, today, your shares would be worth $573,134. It's easy to back-test a portfolio and make returns look great, and there have been times when Coke stock has dropped precipitously. But, over a nearly 30-year period, this result is difficult to argue with.
2. Managers intent on running the business using its own cash generation
In a time when far too many companies go public and existing public companies are far too eager to raise additional capital in the debt or equity markets, it is nearly always a good sign to see a company whose managers are averse to capital raising.
There are plenty of reasons to raise capital, and many are perfectly legitimate. However, a business that is running on its own cash generation is a strong indicator of both healthy operations and long-term-oriented management.
When Charlie Munger -- Berkshire Hathaway's (BRK-A) vice-chairman and Warren Buffett's closest confidant -- became interested in a Chinese electric vehicle manufacturer, BYD (BYDDY), he explained to Buffett the company's merits. Its manager is an engineering virtuoso whom Munger calls a mix of Jack Welch and Thomas Edison. Its products (electric cars, batteries, mobile phones) were considered some of the best in their industry and were quickly adopted by various Chinese municipalities looking to decrease their public transportation carbon footprint.
The two approached the company's CEO, Wang Chuanfu, with an offer to buy 25 percent of the company. Now, just to state the obvious, usually when Warren Buffett comes a-knocking, the red carpet is rolled out and he's is received with eager handshakes to do the deal.
But Wang said no -- he had no desire to hand over a quarter of his company.
His answer only made Buffett's conviction in the company even stronger. The refusal revealed that Wang was a manager who clearly did not want to give away the store, regardless of the short-term benefits and PR boost of running a company one-quarter-owned by the World's Greatest Investor.
Managers who are more inclined to hold on to their business, whether it's buying shares on the open market or refusing to raise endless amounts of capital, are ones who truly believe in the longevity of their biggest investment.
The parties eventually agreed to a 10 percent stake via Berkshire Hathaway's MidAmerican subsidiary. And since the 2008 investment, BYD has had plenty of troubles, including the erosion of its solar panel business and cellphone battery segment. But its electric vehicles continue to gain traction, showing up well beyond China's borders. There are BYDs used as Dutch taxis and, closer to home, electric buses manufactured in Los Angeles and being sold across the United States.
The company has had short-term issues, but Buffett has yet to sell a single share.
3. Boring Businesses
A sexy investment, like anything sexy, is alluring in the most inexplicable ways. When an investor sees the latest tech stock flying high in the markets or hears of friends who got in early on some golden IPO, it is nearly impossible to not want a piece of the action.
However, many of these businesses are enormously complicated, and few besides their managers and industry experts actually know how it all works.
If this were outside the stock market, and instead a private company, why would anyone buy into a business they didn't understand? When evaluating an investment, look for simplicity. Take it a step further -- seek out businesses that are boring.
Take Winmark (WINA), for example. Winmark is the company behind secondhand stores such as Plato's Closet, Play It Again Sports, Music Go Round, and others. It doesn't operate these stores, it only franchises them. The company also has a small and medium-size business leasing segment.
Taking a royalty on sales of used women's clothing and asset leasing is not a business that one discusses on a first date, but it happens to be a highly cash-generative, no-brainer business.
While the world of investing is often challenging, it doesn't have to be. Winmark participates in a business that does well in good times, and thrives in periods of economic uncertainty when shoppers turn to consignment stores for better deals. It capitalizes on the fact that the United States is a small-business engine, with countless people trying to take their slice of the American Dream.
It's an easy, understandable and boring business that earns money. In five years, its stock is up more than 320 percent.
In fact, perhaps because the company is so boring, it receives no analyst coverage from Wall Street. Companies neglected by Wall Street leave greater opportunities for retail investors who spot the good pick and have the ability to get in at a lower price. For comparison, buying Apple at a steep discount to its intrinsic value is very difficult because thousands upon thousands of professional analysts and managers are constantly looking at the stock and pricing it accordingly. Of course, on the flip side, a company with little coverage means the investor has to do more dirty work.
Turning over 1,000 rocks to find a handful of gems may seem daunting, or even impossible. The thing is, using a quick checklist such as the one above allows an investor to throw out 750 of those rocks in less than an afternoon's worth of Internet browsing.
While these qualities may seem overly simplified, they offer a quick tool to help identify businesses that are likely better than their peers and warrant further investigation.
Use these guidelines in conjunction with a more personalized criterion for investment, and you'll soon be on your way to a sustainable, risk-averse long-term portfolio.
Motley Fool contributor Michael Lewis owns shares of BYD. The Motley Fool recommends Apple and Coca-Cola. The Motley Fool owns shares of Apple.