“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 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 decade-long holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Laboratory Corporation of America Holdings (NYSE: LH) back in 2009. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 04/06/2009 |
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| End date: | 04/04/2019 | ||||
| Start price/share: | $59.91 | ||||
| End price/share: | $157.45 | ||||
| Starting shares: | 166.92 | ||||
| Ending shares: | 166.92 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 162.81% | ||||
| Average annual return: | 10.14% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $26,269.43 | ||||
As shown above, the decade-long investment result worked out quite well, with an annualized rate of return of 10.14%. This would have turned a $10K investment made 10 years ago into $26,269.43 today (as of 04/04/2019). On a total return basis, that’s a result of 162.81% (something to think about: how might LH shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
One more investment quote to leave you with:
“Investing is the intersection of economics and psychology.” — Seth Klarman
