Our goal in Motley Fool Hidden Gems is to find the best small companies to own for the next three to 35 years. It's a wonderful aim, since historical data illustrates that small-cap stocks -- particularly of the valuevariety -- have substantially outperformed the overall market over the past 40 years.

To optimize our returns, we look to sell our mistakes quickly, hold sound companies for an average of three years, and then, yes, maintain our stakes in the very best of the lot for a quarter of a century or more. The best time to sell shares of a truly superior small company is almost never.

For example, selling Best Buy (NYSE: BBY) or Research In Motion (Nasdaq: RIMM) in the early days after doubling your money would have wound up costing you dearly. Best Buy is up over 10,000% since its first double; Research In Motion more than 1,500%.

It's been six years, and the Hidden Gemscumulative returns thus far have easily outpaced the market. There's no question that we'll have down periods. But over time we expect to continue to outperform the general market by buying and holding onto the next wave of great American companies.

How do we find them?
One way to find the future greats is to carefully study the major winners from the past. Relatively few multi-decade superstars are technology companies. And while we don't avoid tech stocks in Hidden Gems, they're a minority of our selections. Instead, we favor sleepy and underfollowed companies with high-quality management. For the ultimate example, think Wal-Mart .

In November 1980, Wal-Mart was trading at a split- and dividend-adjusted $0.16 per share. That's right, $0.16. But let's be clear: The stock was selling at $50 per share then, so it wasn't evera penny stock. We think it's nearly impossible to become a penny stock millionaire -- despite the mischievous headline we placed on this article. No, the greatest stocks are those of real companies with real earnings. Because of stock splits, some investors think you'll find the next Wal-Mart while searching among 16-cent stocks. You won't.

So what has Wal-Mart done since 1980 (a full decade afterit went public)?

With the stock trading around $50 as of this writing, it has returned 300 times in value over the past 29 years. A $5,000 investment back then is worth some $1.5 million today. That'll clean up a lot of investment mistakes!

But what if we go all the way back to Wal-Mart's IPO, when it became a public company in October 1970? Then, the business was valued at a tiny $21.5 million. The company has grown at almost 30% growth per year since, and it would have turned a $5,000 investment into nearly $40 million today.

When the company went public, it raised $4.5 million in cash to pay down debts. Wal-Mart was invisibleback then. No one knew about it. Hardly anyone followed it, and more attention was paid to established companies such as Ford (NYSE: F) and Fannie Mae (NYSE: FNM) -- "safe bets" that have posted disappointing multi-decade returns. And that plays right into Hidden Gems' sweet spot.

Reverse-engineering a superstar
Now it's time to list the qualities of what has been one of the greatest 25-year investments in the history of our species. Here are the traits of Wal-Mart in its early days, traits that we look for in Hidden Gems:

Find the next one
We're not trying to reinvent the wheel here at Hidden Gems, because we simply don't need to. There's something on the order of 100 years of researchable history of the U.S. stock markets, and tons of data available over the past 25 years. The Internet makes much of the research relatively quick and easy. Continued...