Four Things That Caught My Eye This Week

As we gear up for a holiday weekend, here are a few of the things that caught my eye over this past week — from the importance of enduring losses as an investor to surprising magnitude of large numbers.

People (probably) underestimate the magnitude of big numbers

What’s the difference between one million, one billion, and one trillion seconds? Look no further than this Tweet:

Something worth keeping in mind when you’re talking about millions, billions, and trillions of dollars in the context of politics, economics, and investing.

Keep things in perspective

The stock market had a rough day last Wednesday (down about 1.5% in a day), and some people started to freak out that it was a sign of worse things to come. I went on NPR to share a few of my thoughts on the drop (shameless self promotion) and why I don’t think it’s something to blow out of proportion:

“We’re just back to where we were at the end of April. So it’s not like the sky is falling; no one was worried about the world ending in April, so you have to keep things in perspective,” he says. “The S&P 500 is still up 5 percent for the year. It’s up over 15 percent for the past year.”

As it turns out, the stock market is hitting new highs a week later. Which brings us to the next point…

To win in the stock market, you must endure the losses

No stock or investment goes up in a straight line. To gain the benefits of investing in stocks, being patient and enduring the times when your investments are down is a must. If you had invested $10,000 in Netflix in 2002, that investment would be worth nearly $1.4 million today. But it was by no means smooth sailing getting to that point:

If you couldn’t handle the regular drops of Netflix (or any stock, for that matter), you won’t be in a position to benefit from those exceptional long-term returns. Even the “obvious” winners today weren’t actually all that obvious, as Morgan Housel explains:

It’s easy to think of Starbucks over the last 20 years as a story of uninterrupted success. We know where it began and where it is today, so that story makes sense. But so much happened in between. Growth slowed, plunged, and spiked again. It fired a CEO. Smart people wrote it off with analysis that made sense. It had to reinvent its growth plans, struggled with the introduction of food, and had trouble expanding overseas. What now looks like a slam-dunk story was, at any given time in the last 20 years, an easy story to criticize. That’s why shares were so volatile.

The most important thing you can do to maximize your chances of investing success is practice patience. Oftentimes the best thing you can do — once your money is invested — is simply sit on your hands. That’s easier said than done, especially when a stock or fund you own is down 30% or more in a short period of time. But as the chart above demonstrates, those who are patient tend to win over the long term.

Thinking about big trends

This week I was on an episode of MarketFoolery with my fellow Motley Fool analyst, Matt Argersinger. We talked about six trends — some that we’re excited about, some that we think have rough times ahead, and others that we’re still trying to figure out. It’s worth a listen for some discussion on some interesting trends in the world today (oil prices, fitness trackers, online grocery shopping, and much more), as well as a few stock ideas.