(FORTUNE Magazine) – ROBERT HAGSTROM KNOWS HOW TO STICK TO A GAME plan. As author of two books on the investing style of Warren Buffett (including The Warren Buffett Way), the manager of the Legg Mason Growth Trust (LMGTX) fund has taken to heart the buy-and-hold approach of his idol. And his patience has paid off for investors. Since the fund's inception in April 1995, Hagstrom, 48, has produced a market-beating average annual return of 11%. His forbearance was tested in late March when videogame titan Electronic Arts (ERTS, $53), one of his largest holdings, said that it would come up well short of its profit estimates for its fiscal year ending March 31. The stock fell 17% in 24 hours and remains far off its 52-week high of $71. But with videogamers bracing for the launch of new systems--notably Microsoft's Xbox 360 at Thanksgiving and Sony's PlayStation 3 in early 2006 (see "Gadgets")--Hagstrom is anything but worried about EA's prospects. We asked him to explain how videogames fit the Buffett investing model, why he's adding to his holdings of EA, and where he comes down on the industry's raging debate: Xbox or PS3? -- Abrahm Lustgarten

How does a newfangled videogame maker like Electronic Arts qualify as an old-school Warren Buffett--type stock?

The Buffett way demands an easily understandable business that has a favorable long-term outlook and a consistent operating history. Electronic Arts is the worldwide market leader in videogames, which is a high-margin, high-return-on-capital business. EA has $3.1 billion in revenue and generates tons of cash: It has almost $9 a share in cash now. The economics are very Buffett-like. And the barriers to entry are going up, not down. Also, the media industry is moving toward this form of entertainment. Games are a central part of people's lives and will be played through cellphones, portables, the Internet, and home systems. Is this a Buffett-like stock? Yeah. Industry leader, great financials, and deeply undervalued.

Aren't you worried that EA missed its earnings so dramatically?

Everybody who follows this business understands there is a rough patch when there is a hardware migration. The old systems are going to be replaced. What we were surprised about is how much catalog sales fell off. That's basically telling you that people are not going to spend a bunch of money when they know they are going to go buy a new Xbox, a new PlayStation. I think the market is highly sensitive to incremental bits of information. Immediate reactions are magnified because there is a lot of short-term speculation.

How does the company's slip-up affect your strategy?

When the stock went down a lot in one day, we just bought more. It wasn't a hard decision to make. Electronic Arts is the fourth-largest position in our fund. It's now 5.1% of the fund. When the stock dropped down to the high $40s, we bought 10% more. If it goes down below $50 we'll buy more again. But we don't play this from quarter to quarter. We plan on owning this stock for years. What happens from month to month is somewhat random and unpredictable, and we're not too concerned about that. When nobody likes it, we like it. When everybody likes it, we hold it.

Right now it's a great opportunity. If you think over the next two to three years that EA will be an $80 stock, which is what our models are telling us, then that's up 60% from $50. That rate of return will crush the market. There's no way the Dow is going to be at 16,000 in two years. So anytime the stock drops down into the low $50s, I think it's a very easy stock to buy. The greatest concern for EA would be its ability to produce hits. What we saw at the E3 [industry conference in May] was that their upcoming games seem to be fantastic. They have Spore, a new, very interesting evolutionary game, and a combat shoot-'em-up called Black, and the Madden 2006 is going to be incredible.

At home do you play Xbox or PlayStation? And which company do you think has the better third-generation game system?

Both of my boys play PlayStation and Xbox, and they like games on both. PlayStation portables will be their birthday presents this year. I do play a little bit with my sons--the sports games. So we do the full experience, and when the new PlayStation and Xbox come out, we'll upgrade. We're the perfect customers. I think Xbox has come out with a dominant system, but I think PlayStation is going to come out right on its heels. The investment opportunity, though, is in software rather than hardware. It doesn't make a difference for Electronic Arts whether Xbox or PlayStation does better. EA's job is to make sure that games are developed for all of them.