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Insights from a Year of Investing: Reflections on the Long Game

As we conclude this year, it’s important to consider what we leave behind. The investments we make not only affect our financial future but also shape the lives of those we love. This cycle is critical for investors, regardless of the daily news. True wisdom comes from reflecting on our experiences. Here are five key lessons I’ve learned from the podcast this year that might resonate with you.

1. The Value of Long-Term Thinking

This month, I’ve been inspired by the insights of my friend Rand Stagen regarding long-term leadership in both business and life. His wisdom sparked much discussion after our podcast together. A notable tweet came from Matt at 307 Fool who said, “Great episode. Love the feeling of being a fly on the wall.” Another listener, @davidgfool, remarked on how our chats help peel back the layers on investing. Rand and I both stress that a long-term outlook is crucial, and anyone familiar with this podcast knows that the real measure of your investments lies in time, not trends.

In his leadership programs, Rand requires at least a year to begin meaningful work. This commitment eliminates quick fixes, encouraging relationships that develop over time—much like the investments in your portfolio. Returns, whether from relationships or investments, come from patience and perseverance, not from rushing for immediate results. Rand also pointed out that life should integrate work with personal purpose instead of separating these areas. He challenges the traditional concept of retirement, suggesting that continual learning and purpose-driven work may be more fulfilling.

While this approach is easier said than done, the important part is striving toward fulfillment in both work and life. Pursuing growth rather than simply seeking balance can lead you to a more rewarding experience. If you’re looking for motivation, I highly recommend listening to my conversation with Rand. We extended our discussion for over an hour beyond the typical podcast length, and I found every moment insightful.

2. The Evolution of Investment Theories

Reflecting back about eight months, our January mailbag focused on the FAANG stocks and what some now call the “Magnificent Seven.” I have always enjoyed examining stocks in groups, evident in the numerous model portfolios we’ve developed over time. Years ago, FAANG stocks—Facebook, Amazon, Apple, Netflix, and Google—dominated discussions about performance in the market. The phrase has since faded, replaced by “Magnificent Seven” as investors look for the next big winners.

Catching media attention is easy with catchy phrases that group successful stocks, yet real investing challenges extend beyond merely owning these shares. It starts with recognizing how long you’ve held them. While many have experienced success with FAANG or Magnificent Seven stocks, the true measure of success is longevity in holding these investments.

Consider your “FAANG score” or, in today’s terms, your “Magnificent Seven score.” This score reflects the years you’ve held these stocks, marking your commitment to disciplined investing. Some fund managers engage in “window dressing,” buying trendy stocks just to showcase in their portfolios for quarterly reports. However, genuine investment isn’t about hopping onto hot trends; it’s about building a history of thoughtful decision-making.

Investing requires a long-term vision and a steady hand. Whether you’re reflecting on your personal investment strategy or digging deeper into stock groupings, focus on what truly matters: the length of your hold and the growth you seek within your portfolio.

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The Path to Long-Term Investing Success: Understanding the Magnificent Seven

When reflecting on a 28-year journey in stock picking at the Motley Fool, one of my proudest achievements is helping our members invest in exceptional companies early on. Engaging with firms before they become household names—notably when skepticism abounds—has been a cornerstone of our investment strategy. Think back to the skepticism surrounding Amazon or Tesla when they were still finding their footing. It’s during these early stages that I’ve aimed to identify promising stocks. This leads us to stage two, or as I like to call it, stage infinity. We hold these stocks long after they become popular and widely recognized. Despite occasional declines that all companies—including the so-called “Magnificent Seven”—experience, many continue to flourish over time.

Eventually, these stocks evolve from breaking the rules to creating them—representing the ideal outcome for investors. Now, let’s explore the “Magnificent Seven” and provide context for how long Motley Fool members have been engaged with these outstanding companies.

Starting with our first stock in alphabetical order, Alphabet was recommended to our Rule Breakers in 2008, making for a total holding period of 16 years. Next is Amazon, which I picked in 1997, leading to a remarkable 43 years of holding when combined with Alphabet’s score. Our third stock, Apple, was introduced through Motley Fool Stock Advisor in 2008. While I initially felt late to the party, I am glad we’ve held Apple for 16 years, bringing our total to 59 years. Following that is Meta Platforms, which went public in 2012, contributing another 12 years to our score, totaling 71 years.

Moving on to Microsoft, it’s important to note that I never recommended this stock. Many investors likely owned Microsoft prior to joining the Motley Fool, and its performance over the last decade is commendable. I acknowledge my miss on this one, so our Magnificent Seven score remains at 71. Next, Nvidia was recommended on April 15, 2005, adding 19 years to our score, raising it to 90. Lastly, Tesla, introduced in 2011 after a presentation by Elon Musk at our headquarters, adds another 13 years, reaching a grand total of 103 years for this Magnificent Seven selection.

It’s worth noting that all six of these stocks stemmed from the principles that define Rule Breakers. I’ve outlined the critical traits that consistently guide us in identifying promising investments. The challenge, however, lies not just in spotting these winning companies but also in holding onto them. Your “Magnificent Seven” score reflects this ability, positioning ownership duration as a true measure of investment success.

As you discuss investing with friends or colleagues, perhaps at the water cooler, take the opportunity to ask, “What’s your Magnificent Seven score?” This simple yet engaging question can lead to enlightening conversations about long-term investing strategies.

In recent news, Amazon announced that all employees will return to the office full-time starting January 1st, which may prompt discussions about workplace dynamics as many people transition back to in-person work. In a broader sense, as people reconnect, consider discussing your journeys in investing. The essence of investing is not merely in acquiring these stocks but retaining them over the long haul. My current score of 103 will soon increase to 109 as we continue to hold these companies through our services, both personally and for our members.

In closing, Bill Burke’s recent appearance on the podcast brought forth valuable insights from Kevin Kelly’s book, “Excellent Advice for Living.” The key takeaway: if you only consume current news, it may seem as if the world is in decline. However, a historical perspective shows that, by several measures, we are living in an unprecedented time of progress. This wisdom encourages us to appreciate being alive in 2024, recognizing the vast improvements humanity has made over time.

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Understanding Today’s Market: Lessons from History and Risk Assessment

Throughout human history, approximately 108 billion individuals have lived. Today, about 8 billion of us are currently alive, which means that over 100 billion people have preceded us. If offered a chance to choose when to be born, most would likely prefer the modern era, including 2024, over centuries like 1924 or even 1024 BCE. Unfortunately, one might not always get this sense if they focus solely on the news.

The Fear Factor in Investing

News often fosters fear around investments. Many individuals have approached me, expressing regret over selling stocks because they anticipated a market downturn. This sentiment has been repeated across generations. Friends frequently claim the upcoming election is the most pivotal moment in American history—although I respectfully disagree. Despite the noise surrounding elections and current events, I believe the stock market provides a clearer view of public sentiment regarding the economy. Remarkably, the stock market is currently at all-time highs. While I don’t assert that today or this week is the absolute best, it’s worth noting that stock market investors tend to look forward. Typically, the market anticipates changes approximately six months ahead. Therefore, if you feel anxious or disheartened, observe the market’s performance as a counterpoint to your feelings. While the stock market is one measure of our collective well-being, its performance reflects broader human outlooks. If people genuinely believed we were heading for disaster, they would be selling, and the market would not be experiencing these highs.

Linking Market Trends and Investor Sentiment

I don’t claim to know where the market will head in the next year. Long-time followers might know I have a positive outlook for this period. It’s crucial to connect market performance with what investors, reflecting on the current situation, may think. Bill Burke made an insightful observation during a recent podcast that I’d like to highlight. He articulated the difference between optimism and hope. Many often conflate these two terms; however, Burke explained that an optimist believes the odds are in their favor, while hope emerges when the odds are against us. This differentiation affects how we tackle challenges. When you feel optimistic, you maintain confidence in the future despite uncertainties; hope, meanwhile, thrives in adversity. Burke’s insights during the podcast, particularly on this distinction, were truly valuable.

Calculating Risk: A Systematic Approach

Now, let’s shift gears and discuss a concept I emphasized earlier this year: calculating risk. I have developed a 25-point system to evaluate the risk associated with stocks—a resource that’s not heavily promoted but essential for sound investing decisions. This framework allows investors to gauge risks on a numerical scale—transforming vague terms like “medium risk” into precise evaluations such as “risk of 9” or “risk of 15.” Understanding risk is pivotal. I define real investing risk as the potential for significant capital loss over an extended time, say five years or more. Unlike the common perception that equates risk with volatility, I advocate assessing what losing a substantial amount of money would mean if holding a stock long-term. This clarity is crucial for making informed investment decisions.

Risk vs. Reward: A Misconception

Many investors assume that higher risk directly correlates with greater rewards. However, this is a misconception. During a podcast where we analyzed stocks using our risk assessment framework, we discovered that some lower-risk stocks can yield greater returns. This finding challenges the traditional investment wisdom that more risk guarantees more reward. For those interested in deeper insights, I encourage you to revisit the podcast from January 24 to explore these ideas further.

Inspiring Stories on Conscious Capitalism

As we must also highlight moments of inspiration, I reflect on a powerful story shared by John Mackey, the founder of Whole Foods Market. In a podcast from August, he recounted the challenges faced during the early days of Whole Foods, particularly an unexpected flood that devastated their flagship store in Austin, Texas. Despite knowing they were situated in a flood-prone area, Mackey maintained an optimistic outlook. This experience eventually propelled his commitment to conscious capitalism, showcasing how one can transform adversity into a lesson on purpose and values. I encourage you to listen to this story for a personal perspective on resilience and business integrity.

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Lessons from a Flood: How Community and Stakeholders Saved Whole Foods Market

In a heartfelt reflection, John Mackey, former CEO of Whole Foods Market, shared how the support of stakeholders helped his company recover from a devastating flood. He recounted the day when, despite their store being flooded, members of the community showed up to lend a hand, embodying the true spirit of partnership.

Community Support in Times of Need

During a flood that threatened his business, Mackey recalled feeling completely overwhelmed. In his book “The Whole Life,” he detailed the experience, mentioning how the very next day, community members, whom he recognized but who did not work for him, came to assist in the cleanup. One man expressed, “I love you guys. You’ve got to survive this.” It was a poignant reminder of how interconnected we all are.

The Unwavering Loyalty of Team Members

Mackey also highlighted the dedication of his team, who worked without pay as the company struggled financially. Despite the uncertainty, no one quit. Their faith in the company was unwavering, and once they reopened, everyone was compensated for their hard work.

Support from Suppliers and Financial Backers

Whole Foods received significant backing from suppliers and investors during this tough period. Mackey shared how they were able to secure hundreds of thousands of dollars in new inventory on credit. However, it was a surprising $100,000 loan from the bank that made a pivotal difference. Mackey initially felt unworthy of this support, as he had no significant assets. Interestingly, he later learned that Marc Monroe, his banker, had personally guaranteed the loan, believing in Mackey’s commitment to repay. This act of trust became a defining moment in the company’s ability to bounce back.

Understanding the True Value of Stakeholders

Reflecting on this journey, Mackey emphasized the importance of recognizing all stakeholders—employees, customers, suppliers, and investors—who contribute to a business’s success. He articulated a vision of business as a collaborative environment, where everyone has a role and a reason to engage. “If people don’t appreciate your value, they can choose to go elsewhere,” he noted. This perspective shaped Whole Foods into a community-oriented company, investing in its local surroundings and forging strong relationships.

A Tribute to a Fellow Traveler

As he concluded his message, Mackey paid tribute to Neil King Jr., a guest on his podcast, who recently passed away. King, known for his book “American Ramble,” had chronicled his trek from Washington, D.C., to New York, connecting with people along the way. In a heartfelt quote from his work, he wrote about the importance of pausing in awe of our surroundings, reminding us of the simple beauty in life. King’s capacity for wonder resonates with Mackey’s ethos of valuing connections, echoing the sentiments behind Whole Foods’ resurgence.

John Mackey is a member of The Motley Fool’s board of directors. Randi Zuckerberg and Suzanne Frey are also members of the board. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, PayPal, and Tesla, among others. The Motley Fool’s disclosure policy is available for review.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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