Buffett’s punch card suggestion is all about the virtues of doing nothing. Most of us sabotage ourselves with too much trading. We listen to rumors, change our minds, jump in and out of stocks — at just the wrong times. Terrance Odean, a professor at the University of California at Berkeley, has traced the trading records of thousands of small investors and discovered that nearly all of us tend to buy stocks when they’re expensive (think back to 2006 and 2007) and sell them when they’re cheap (like last year). That, of course, is precisely the wrong way to make money.

Odean’s research suggests that many of us could boost our results simply by resisting the temptation to ditch lacklustre stocks in favor of hotter names. One of his research projects tracked people who sold stocks and then immediately turned around and bought other stocks. These people presumably thought they were dumping losers in favor of winners. But that’s not the way things worked out in practice. The stocks that the investors dumped went on to perform about 3.6 percentage points better over the next two years than the stocks they bought. Assuming that these results are typical, it would seem that most of us could bump up our returns from, say, 5% a year to nearly 9% simply by learning to buy and hold a few quality stocks.

Buffett follows exactly that approach. He has held many of his core holdings — the Washington Post Co., Coca-Cola, American Express and Geico — for decades. “Our favorite holding period is forever,” he avers.

But which stocks today are Buffett-like keepers? In this 10th anniversary issue of MoneySense we thought it would be fun to look ahead and attempt to pick 10 stocks that we think will be great buy-and-hold investments for the decade ahead.

We warn you that this is a dangerous exercise. Fortune magazine attempted a similar story in 2000. Out of the 10 “buy-and-forget” stocks it selected, only one (Genentech) proved to be a winner. Two of Fortune’s picks (Enron and Nortel) went bust. Many others (Broadcom, Nokia and Charles Schwab) are trading at a fraction of their 2000 price. The decade isn’t quite up yet, but it looks as if Fortune’s can’t-miss picks from nine years ago would have lost you about half of your money.

We wanted to avoid a repeat of Fortune’s experience, so we tried to learn a few lessons by observing where that esteemed publication went off the rails. Three observations:

• Fortune’s list of stocks to love was insanely expensive. Sure, 2000 was a giddy time for the stock market, but what were those Fortune writers smoking? The average price-to-earnings ratio of their picks was 100, as compared to a more normal ratio of 15 or so.

• Fortune assumed that current trends would continue pretty much forever, so it picked the current hot sectors and looked for the hottest companies in each of them: Nokia in cell phones, Viacom in broadcasting, Morgan Stanley in investment banking, Oracle in communications software, and so on. It appears that Fortune’s stock pickers never pondered the chance that these sectors might cool off.

• Fortune bet all its money on only four trends: networking, entertainment, the “boomerization” of financial services, and biotech. It did not diversify widely and it ignored the stodgy, old-fashioned sectors, such as banking, retail or consumer goods, that make up most of the economy.

In constructing our list, we started by reversing these three mistakes. We looked for cheap companies trading for 15 times earnings or less. We picked stocks that operate in some of the market’s coldest areas. We tilted things in favor of easy-to-understand businesses. We searched for companies that make or do things that people need every day or companies that, in some way, are essential to the economy.

Our research put a dent in some of our preconceptions. For instance, we had initially thought that our list of 10 can’t-miss investments would include several oil and gas companies. And why not? Just about every talking head on the TV screen appears to think that the world is facing an energy crisis.

Perhaps the talking heads are right, but after a lot of reading, we’re not so sure. Energy prices move in booms and busts. People have worried for half a century that the world will run out of oil — and so far oil is still flowing in vast quantities. In fact, the ratio of global oil reserves to current production has gone up. Back in the mid-1970s, the industry estimated the world had only 26 years of oil reserves at then-prevailing rates of production. By 2005, the ratio had soared to at least 40 years’ worth of production.

Most of the hysteria around oil centres on the Hubbert’s peak hypothesis, which holds that the world is at or near its peak oil production. The peak oil zealots may be right, but even if it is true that we are at our oil-producing peak, we still have decades left of gradually declining production. And it’s not by any means sure that we are at Hubbert’s peak. The date for the peak has been continuously revised over the years. M. King Hubbert, the geophysicist who invented the hypothesis, originally estimated that global oil production would top out between 1993 and 2000. In fact, global oil production in 2005 was 23% above the 1993 level.

There is no indication that the world is facing any shortage of natural gas either. Only three years ago, alarmists fretted that the U.S. was running out of the stuff. Then came massive new discoveries in the Barnett Shale of Texas and the Haynesville Shale of Louisiana. The industry now reckons that the U.S. has a reserve of natural gas equal to nearly 100 years of current usage.

What is an investor to make of all this? We acknowledge that oil and gas prices may soar over the next decade, but we think that they could equally well sink or plateau. There is no way to tell. By all means, invest in oil and gas companies if you want a well-diversified portfolio; just don’t think these firms are a sure ticket to riches.

More certain profits are to be had in other sectors. As we’ve already noted, we like cheap companies, in less than glamorous industries, that make money by providing everyday goods and services. Beyond that, our research led us to favor companies with a global reach (because emerging markets will provide much of the globe’s growth) and ones that can pass along price increases (because the amount of fiscal stimulus that governments are forcing into the system may well lead to a renewed outburst of inflation). Since debt is a major reason for corporate failure, we favored firms with as little of it as possible. We tried to select companies with entrenched market positions and substantial barriers to competition. And since consumer wallets may be rather tight over the next few years, we looked for firms that offer essential services or that can benefit from government spending.

These 10 stocks made our list of buy-and-hold investments for the decade ahead. (All prices are as of May 1.) Do your own research before buying and make sure nothing has changed since the time of writing.

Boeing (NYSE:BA, $41.50 U.S.) has taken a tumble over the past year and now trades for less than half its 52-week high. We think its plunge is a classic example of short-term thinking. However the future unfolds, rest assured that the world will need plenty of planes. Boeing is one of only a handful of companies that have the size and expertise to deliver the next generation of commercial jets. It can also count on landing a steady stream of defence contracts. Yet this essential firm trades for only 14 times earnings. It also pays a 4.2% dividend.

Cemex (NYSE:CX, $7.89 U.S.) makes cement. That’s it. Pretty exciting, huh? The Mexican company has operations that span the world and its stock price has collapsed in line with the global recession. But while construction projects are on hold for now, we don’t think the world has declared a permanent end to its need for cement. When growth does resume, Cemex should be highly profitable once again. Right now, you can buy the company’s stock for less than half of book value and under five times trailing earnings. That’s cheap, cheap, cheap. One caveat: this company has a large amount of debt, which it will have to renegotiate over the next couple of years.

eBay (NASDAQ:EBAY, $16.60 U.S.) continues to dominate the market for online garage sales despite competition from the likes of Amazon. It has essentially no debt and trades for less than 13 times trailing earnings. Its PayPal unit, a system for handling online payments, is growing fast and now generates over 30% of eBay’s revenues. The danger here is that management has a record of making some less-than-brilliant acquisitions. (Remember Skype?) But assuming that management concentrates on defending and building its core businesses, we love eBay’s prospects for the decade ahead.

Fairfax Financial (TSX:FFH, $321) is cheap. It trades for less than four times its trailing earnings and less than book value. Just as important, this Toronto insurance company is a great asset allocator and a fantastic value investor. Prem Watsa, its leader, was one of the few investors to bet against the housing bubble. He made billions by buying credit default swaps that would rise in value as other companies’ creditworthiness deteriorated. These days Fairfax is expanding globally, with subsidiaries in Asia and central Europe. While insurance is a cutthroat business, we think Fairfax’s investing expertise will set it apart from the pack.

Leucadia National (NYSE:LUK, $21.65 U.S.) operates a bit like a small town junk shop. It buys a bit of this, a bit of that. It fixes the stuff up and resells it. The strategy isn’t complex, but it’s immensely profitable if you’re a good judge of value. Ian Cumming and Joe Steinberg, who have been running Leucadia since 1978, appear to be excellent judges. Their record of investor returns is actually slightly better than Warren Buffett’s. But their sprawling empire — which encompasses everything from iron mining to wineries to biotech — has had a rough year and Leucadia’s shares have fallen to less than half their 52-week high. We think that means it’s time to buy. No matter how the world unfolds over the next decade, we suspect Cumming and Steinberg will find a way to prosper.

Johnson & Johnson (NYSE:JNJ, $52.59 U.S.) is the classic widows-and-orphans’ stock. The huge health-care company spans the globe and operates in markets ranging from medical equipment to skin care. It is a financial fortress, with little debt, steadily growing revenues and the ability to profit from the world’s growing desire for health and beauty products. It trades for less than 12 times earnings and pays a dividend of 3.7%. Boring? Probably. But we think that boring might do very well in the decade ahead.

Microsoft (NASDAQ:MSFT, $20.24 U.S.) has lots of flaws. Let us list some of them for you. It’s a software giant that doesn’t make industry-leading software anymore. It’s hopelessly unhip. It has yet to come up with a convincing online strategy. And so on. But you know what? This is also a company that has zero debt, that has doubled its net income over the past four years, and that trades for under 12 times earnings. We think there’s life left in the machine that Bill Gates built. And at this price, it doesn’t cost much to go along for the ride.

Service Corp. International (NYSE:SCI, $4.48 U.S.) makes its money from death. The Houston company operates funeral homes and cemeteries in the U.S., Canada and Germany. Given the greying demographics of much of the developed world, we are confident that the funeral business will enjoy steady growth over the next decade. While Service Corp. has more debt than we wouldlike, it trades for around book value and only 12 times earnings. It also pays a 3.6% dividend.

TransCanada (TSX:TRP, $30.25) performs two essential tasks: it generates electricity and it transports natural gas via its pipelines. We think both industries will do well over the decade ahead as power needs continue to grow and natural gas becomes a bigger part of the North American energy mix. TransCanada is no growth stock, but the Calgary company could be a surprisingly rewarding performer, given that it’s trading nearly 25% below its 52-week high. A dividend yield of 5% gives you plenty of reason to stick around and find out what lies ahead.

Wal-Mart (NYSE:WMT, $50 U.S.) is hated by unions. And it doesn’t get much love from Wall Street, which considers it too big to grow fast. But what company is better suited to the grind of the current economy? The world’s biggest retailer is the master at delivering low-priced merchandise to budget-hugging consumers. While other storekeepers staggered through the past year, Wal-Mart grew its earnings per share at a 6% annual clip amid one of the worst retailing climates in history. It may be nearing its limits to growth in the U.S. and Canada, but it still has lots of room to expand in China, India, Japan and Latin America. It trades for only 15 times earnings.

Most of us figure that our biggest challenges when it comes to amassing money are unpredictable markets, inadequate paycheques, and the like. In fact, those obstacles shrink in comparison to the real foe — yourself.

That’s right. When it comes to amassing wealth, your mind will bewitch you and mislead you. It can cost you a fortune — and may already have done so. DALBAR, a Boston research group, tracked the behavior of investors in the U.S. from 1984 though 2000. The stock market surged by 16% a year during this period. However, the average investor in a stock fund earned only about 5%. The huge gap between what the market produced and what investors actually got was mostly the result of people’s habit of jumping in and out of funds, chasing whatever was hot. By pursuing the crowd, investors lost two-thirds of the profits they could have had.

Our sheep-like tendency to follow the crowd is just one way in which our minds mislead us. We’re far less rational than we think when it comes to money, according to Richard Thaler at the University of Chicago, Daniel Kahneman at Princeton University and many other researchers in the field of behavioral finance. Their work shows that, among other things, we put too much emphasis on whatever has happened most recently. (The “recency” effect is why everyone was buying dot.com stocks in 1999 and may be why everyone is jumping into the real estate market now.) We hate to admit our mistakes, so we stick to lost causes past the point of reason. (If you’re still holding on to that Nortel stock you bought back in 2000, you know what I mean.) And we suffer from confirmation bias, which is a scientist’s way of saying that we want to talk only to people who agree with us. (So if you don’t like what I’m saying, please go away…just kidding.)

If you read this list of psychological tics and thought to yourself, boy, other people sure do silly things, but thankfully you don’t — think again. You’re suffering from overconfidence. It’s by far the most psychological illusion and it’s a brutally hard habit to break.

Researchers have shown that nearly all of us are overconfident, sometimes to the point of comedy. Eighty percent of students predict they will finish in the top half of their class. Seventy-five percent of mutual fund managers think they are above average at their jobs. Almost 90% of us think we’re better than the typical driver.

The more you know, the more likely you are to overestimate your ability to predict the future. Philip Tetlock, a professor of political science at Berkeley, spent years surveying the views of top political scientists and analysts on world events and found that these supposed geniuses were usually wrong even when they were most confident. On predictions in which they indicated they had 80% or more confidence, they were correct only 45% of the time. Overall, they had no more ability to forecast the future than a coin flip.

The moral? Be humble, be willing to admit mistakes, and be willing to change your mind. In the pursuit of wealth, “don’t get hung up on one technique, tool, approach or view,” writes James Montier, global equity strategist at Dresdner Kleinwort Wasserstein in London and author of many papers on the psychology of investing. “Flexibility and pragmatism are the order of the day.”

In fact, retirement for many of us is going to be an exercise in calculating odds and balancing one probability against another. Should we treat ourselves to that grand tour of Europe? Or deny ourselves because we may need the money years from now to pay for a nursing home? Should we invest aggressively to increase our chances of growing our nest egg? Or play it safe and take as few chances as possible?

These are anxiety-inducing questions and, ironically, you can blame that anxiety on the long, healthy lives we’re now living. Back in the 1920s, a newborn Canadian could expect to live for less than 65 years. Today, a baby born in Canada can expect to live to 80. So while our grandparents and great-grandparents didn’t spend a lot of time thinking about retirement—and with good reason!—we now have to budget and plan for 20 years or more of not working.

A lot can go wrong over a couple of decades. And even if you set things up perfectly for a nice 20-year retirement, fate has an odd sense of humor. After years of planning, you may die young—or live long, long past what you thought would be your expiry date.

One of the most common mistakes that people make in retirement planning is basing everything on the notion that they will live to what they believe to be the average life expectancy. You should remember that the average life expectancy is just the midpoint in a huge range of possibilities.

Among other things, bear in mind that the life expectancy figure you read in the newspaper is usually expressed in terms of what a newborn child can expect. The figure assumes there will be a steady number of deaths at every age along the way—a few people will die in childhood, a few others in adolescence, and so on. Those early deaths drag down the overall figure. So if you’ve dodged disease and accidents and made it all the way to 65, your life expectancy is considerably greater than the average for a newborn would suggest. Someone who is 65 today has a better than even chance of living to 85.

Remember, too, that the average life expectancy figures are just that: averages. Some people enjoy far fewer years; some enjoy many more. The average life expectancy for seniors may be 85, but that doesn’t mean you can ignore anything past 85. About half of seniors will live beyond that point— sometimes well beyond. The 30-year retirement is not uncommon and you have to be prepared for the possibility that you’ll be blowing out the candles on your 100th birthday.

The problem, from a financial perspective, is that there are no guarantees. Moshe Milevsky, associate professor of finance at York University in Toronto, points out that a 65-year-old man who retires today faces an 8% chance of dying before he turns 70. He also faces a nearly identical 8% chance of living past 95.

Think about the practical implications of those figures. Our 65-year-old man may expect to die relatively young. He may burn through his cash and treat himself to lots of expensive indulgences—only to find that, gosh, he’s a Methuselah who has to live the last quarter century of his life trying to make ends meet on a meager budget.

On the other hand, he could play it safe and pinch pennies to ensure he will have enough to last until he’s a centenarian. But, if so, he faces a real possibility of finding himself in a hospital bed at 68 or 69, listening to a doctor deliver a grim diagnosis, and cursing himself for not enjoying life more when he had the chance. The odds of disappointment are identical no matter which option our hypothetical 65-year-old chooses, so how does he—or you—make a choice? The following plan can help you make the most of the retirement odds.

Calculate your must-haves

You often hear retirement planning boiled down a single figure: “you need $1 million to retire well.” A smarter approach is to think of your retirement plans as consisting of two separate figures: one for things you must have, the other for things it would be nice to have.

The first and most important part of retirement planning is taking care of things you must have. You want to ensure you have enough to live on without feeling deprived of anything vital.

You can estimate your target figure by toting up how much you spend in all areas, then deducting the expenses that will disappear in retirement, i.e. no more mortgage payments (because the house will be paid off), no more child care or tuition payments (because the kids will be adults), no more retirement savings (because you will be retired). You should also deduct any luxuries you could live without in retirement, such as a second car. You can also subtract the cost of commuting to the office, work clothes, and so on.

The amount that’s left represents what it would cost you to maintain the essentials of your current lifestyle in retirement, and that figure is probably a lot lower than you think. Most middle-class couples arrive at a must-have figure of $30,000 to $40,000 in after-tax income.

Calculate your nice-to-haves

We all have dreams and you should budget for those, too. Maybe you want to take that African safari, golf every day, or winter down south. You should size up what it would take to pay for whatever bliss you desire and regard that figure as the second part of your retirement planning.

Just one tip: when assessing your nice-to-have list, remember that age takes its toll. Right now you may dream of traveling the globe. Once you’re past your early seventies, however, you’re likely to discover that your wanderlust is diminished. Similarly, you may find that golfing every day is no longer a pleasure once you’ve hit 75. So by all means budget for luxuries, but keep things within reason. You’re not likely to be globe-trotting for 30 years nor whacking iron shots to the green on your 95th birthday.

Count on government

Despite what the fear mongers would have you believe, Canada Pension Plan (which is funded by contributions from you and me) is in fine shape. Old Age Security (which is funded out of general government revenues) looks to be on solid ground, as well.

If you’ve worked in Canada all your life, you can expect to receive $11,000 to $16,000 a year from those two sources, depending upon what you made during your working years and how early you start collecting your pension cheques. A husband and wife who have both worked until retirement at 65 can expect $22,000 a year or more between the two of them. That money will keep pouring in as long as you live, with no particular planning required on your part.

You should compare what government will provide you with what you figure your minimum retirement needs will be. If you and your spouse figure you can maintain the must-have parts of your current life on, say, $33,000 a year, the good news is that retirement becomes a very affordable proposition. You may have to add only $11,000 a year in after-tax income from corporate pensions or savings to ensure the key components of your retirement plan.

Factor in pensions and RRSPs This brings us to the thorny issue of pensions. You may be fortunate enough, if you’re a public servant or work in the right industry, to be the recipient of a pension that guarantees you a “defined benefit” in retirement. If so, you can simply contact your employer’s human resources department to find out the size of the monthly retirement cheque you can expect.

If that amount is enough to bridge the gap between government stipends and your retirement needs, then congratulations! Your retirement planning is largely done. You may still want to contribute to an RRSP to finance luxuries, to provide you with a buffer against inflation, and to guard against the possibility that your employer will go bust and renege on its pension promises, but, in all probability, those RRSP contributions will simply increase your security, not determine your retirement lifestyle.

Most of us, though, aren’t in that position. Maybe you don’t have a pension plan. Or perhaps your employer’s pension plan is a “defined contribution plan” that only promises how much your employer will contribute each year you work, but leaves the actual investing up to you. Or maybe your employer’s defined benefit payouts aren’t enough to bridge the gap between government pensions and what you need. In any of those cases, you’re going to have to deal with uncertainty.

So get a handle on risk

This is where playing the odds becomes vital. Some retirees insist on playing it safe and keeping all their money in bonds and GICs. Others go for the gusto by betting on high-yield real estate investment trusts, penny stocks and small growth firms in hopes these high-risk, high-reward bets will provide them with the income they want.

Both approaches are flawed. Stashing everything in bonds and GICs raises the risk that inflation will whittle away the real value of your savings. On the other hand, betting on high-risk stocks or trusts raises the odds that you’ll make a big mistake and wipe out a chunk of your savings.

The best solution for nearly everyone is a well-diversified portfolio that has 30% to 50% of its assets in various fixed-income investments, such as bonds and GICs, and the remainder in a wide variety of stocks from Canada and other countries. One good approach to building such a portfolio is outlined in our article about couch potato investing.

No portfolio, though, can guarantee a given return. What makes retirement planning so difficult is that you’re drawing down your portfolio for living expenses at the same time as the markets are bobbing up and down. The first few years of your retirement are particularly crucial. If you have the bad luck to retire at just the moment that the markets head into a bear market plunge, your withdrawals combined with stock market losses could put a hole in your portfolio from which it will never recover. On the other hand, if you retire at the same moment the markets decide to go on a tear, the surging market returns may more than cover your early withdrawals. You may actually increase your net worth in retirement.

If you want to make your money last for 30 years, count on withdrawing no more than 4% of its initial value each year, adjusted for inflation. You should begin your retirement by withdrawing $4,000 a year for each $100,000 you start with. If inflation is running at 2% a year, you would withdraw $4,080 the next year, $4,162 the following year, and so on.

The 4% figure comes as a shock to many people, who assume that they can count on their portfolio for 10% or more in the way of annual payouts. To read more about the reasoning behind the smaller figure, refer to The 4% Solution below.

Balance the present and the future

Here’s where individual preferences become important. While a 4% withdrawal rate gives a well-balanced portfolio an excellent chance of surviving 30 years, it’s very much a pessimist’s strategy. Chances are that things will turn out better than the worst case. If they do, you stand a good chance of leaving behind a tidy fortune. Your heirs will no doubt like this arrangement and if you want to leave them a big bequest, that’s fine—but it’s probably not the optimal deal for you. In fact, if you apply the 4% withdrawal figure to your entire portfolio, you’re probably erring on the side of caution and living on less than you could in retirement.

A better idea is to treat the must-have and nice-to-have portions of your portfolio in different ways. When it comes to your must-have portion, play it safe and count on a 4% annual withdrawal rate. If you calculate, for instance, that you’re going to need to generate $16,000 a year on top of CPP and OAS to provide you with the necessities of your life, you should accumulate at least $400,000 in RRSP savings or the equivalent in corporate pension plans. That $400,000 should be able to fund an inflation-adjusted withdrawal rate of $16,000 for as long as you live.

If you don’t want to worry about the ups and downs of a portfolio, you can use some of your must-have savings to purchase an annuity that will provide you with a guaranteed payout for the rest of your life. Be sure to compare annuities from different companies to get the best possible deal. Look at all the different options available. Some annuities pay your heirs a lump sum if you die early; some are inflation-protected; some cover both you and your spouse. Seek the advice of a good fee-only financial planner before buying. Put particular emphasis on making sure that the insurance company that offers the annuity is as financially sound as possible. (Look for at least an AA rating from a rating firm such as A.M. Best. To learn more about these ratings, go to Ambest.com.) You may even want to split the annuity portion of your musthave money between two or more companies to ensure no single disaster can swallow up your savings.

Once you’ve built a fortress around the must-have component of your portfolio, you can treat the nice-to-have portion with more freedom. You can and should plan to run through a chunk of your nice-to-have budget in the early years of retirement, when you’re going to be most active. By the time you turn 75, your appetite for travel and other luxuries is likely to diminish and by the time you hit 85, many of your discretionary expenses will have dropped away completely. If your nice-to-have money is running low at that point, so be it. You will have extracted maximum value from your nice-to-have money when you were still healthy enough to enjoy it, while protecting your future by ensuring that your must-have needs are well covered. That’s the retirement we all want and it’s well within your reach.

The 4% Solution: More on making your money last

William Bengen, a financial planner in California, is the author of a long, but easy-to-understand explanation of how different withdrawal rates can affect your retirement. Originally published in the Journal of Financial Planning, “Determining withdrawal rates using historical data” is a classic in its field. His key finding? A 4% withdrawal rate is the most a truly long-term investor should consider. If you’re looking for a shorter take on the same subject, go to Scottburns.com and check out the “The Spender’s Portfolio and Portfolio Survival” section. The examples used are from the U.S., but the same math applies to Canada.