“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a five year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Facebook Inc (NASD: FB) back in 2014: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full five year investment time horizon and then actually held for these past 5 years, here’s how that investment would have turned out.
| Start date: | 04/07/2014 |
|
|||
| End date: | 04/04/2019 | ||||
| Start price/share: | $56.95 | ||||
| End price/share: | $176.02 | ||||
| Starting shares: | 175.59 | ||||
| Ending shares: | 175.59 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 209.08% | ||||
| Average annual return: | 25.35% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $30,908.93 | ||||
The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 25.35%. This would have turned a $10K investment made 5 years ago into $30,908.93 today (as of 04/04/2019). On a total return basis, that’s a result of 209.08% (something to think about: how might FB shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
One more piece of investment wisdom to leave you with:
“A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price.” — Benjamin Graham
