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“I buy on the assumption that they could close the market the next day and not reopen it for five years.”

— Warren Buffett

The wisdom of Warren Buffett reflects a value-based philosophy about investing that says investors are buying shares in a business, and encourages strategic thinking about investment time horizon. Before placing a buy order for a stock, a great question we can ask is whether we would still be comfortable making the investment if we couldn’t sell it for many years?

A “buy-and-hold” approach may call for a time horizon that spans a long period of time — maybe even lasting for a five year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Electronic Arts, Inc. (NASD: EA) back in 2014. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:

Start date: 03/12/2014
$10,000

03/12/2014
$33,038

03/11/2019
End date: 03/11/2019
Start price/share: $29.98
End price/share: $99.04
Starting shares: 333.56
Ending shares: 333.56
Dividends reinvested/share: $0.00
Total return: 230.35%
Average annual return: 27.00%
Starting investment: $10,000.00
Ending investment: $33,038.37

As we can see, the five year investment result worked out exceptionally well, with an annualized rate of return of 27.00%. This would have turned a $10K investment made 5 years ago into $33,038.37 today (as of 03/11/2019). On a total return basis, that’s a result of 230.35% (something to think about: how might EA shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Here’s one more great investment quote before you go:
“Know what you own and why you own it.” — Peter Lynch