While the majority of the stock market's participants are painfully focused on the short term, investors who have ignored the noise and owned great companies like Costco or Starbucks for decades have enjoyed life-changing returns.
The chart below might make owning these two stocks seem like a no-brainer, but there have been plenty of periods when being an investor in these businesses has been downright painful.
Here's the trick to remaining a shareholder of great businesses through thick and thin: Instead of looking for stocks you think are about to take off, buy companies you are a fan of.
The Motley Fool's co-founder, David Gardner, has on many occasions pointed out that the Latin root of the word investor -- investiri -- literally means "to wear the clothes of," just like sports fans wear jerseys of their favorite teams.
I'm not suggesting you ignore the fundamentals when researching stocks, but as you cast your net out, focus on businesses you admire and believe in.
In doing so, you'll build the conviction that will allow you to hold on to your winners through the rockiest of market conditions.
It makes learning about the business easy
If you've been a long-term consumer of a company's goods or services, you may already understand the basic business model, which makes the research process much easier. Being able to explain how a company makes money and ideally how it will make more money in the future is key to long-term success.
For example, as a longtime patron of Chipotle Mexican Grill, I have a strong understanding of what separates the company from other fast-casual restaurants. It's one of the few places where you can expect a relatively cheap and healthy meal made from high-quality ingredients, wherever you are in the U.S.
While I'm not yet a shareholder, every time I head to my local Chipotle to pick up my chicken burrito bowl with guac, I question why I haven't invested. The lines are always long, and yet I'm always pleasantly surprised by how quickly I am in and out with my food. Needless to say, these qualities keep me coming back to contribute to the company's steadily growing financials.
I'm not writing this to say you should rush out and buy Chipotle shares but to drive home the point that it's much easier to research and understand businesses when you've been a longtime customer.
The better you understand how a company's business works, the more conviction you'll have in the stock. We are all fans of brands and products, so make it easier on yourself and focus on the companies you're already familiar with and admire.
Believing in companies makes it easier to hold them
Aside from being a satisfied customer, another reason you might be a fan of a company is because you believe in its mission. In a 2019 publication, Deloitte found that purpose-driven companies grow on average three times faster than their competitors.
When you invest in companies whose purpose aligns with your personal values or vision for the future, you'll find it's much easier to hold on during periods of extreme volatility.
Let's consider Tesla as an example. While the company's eccentric CEO has certainly created plenty of controversy, this business is a mission-driven organization.
Its goal is to accelerate the world's transition to sustainable energy, and it's already made significant progress as the global leader in the electric vehicle industry, a space that many experts believed would never become mainstream.
If you've held the stock for more than a few years, you're likely very pleased, but it's been a roller coaster ride. Consider the following charts showing Tesla stock's trajectory over the long term and the last eight months.
As you can see in the first chart, when you zoom out on great companies, owning the stock looks easy. But long-term Tesla shareholders are all too familiar with the second chart too, and this isn't the first time the stock has had an extended period of volatility.
All great companies go through such periods. Amazon has fallen by 50% on four different occasions, and even Berkshire Hathaway has seen its share price get cut in half three times.
If you're going to own great companies for long periods of time, you'll have to prepare yourself for similar sell-offs. And one of the most effective ways of doing so is by owning companies you believe in.