“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— 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 twenty year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Waters Corp. (NYSE: WAT) back in 1999. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 06/01/1999 |
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| End date: | 05/30/2019 | ||||
| Start price/share: | $25.05 | ||||
| End price/share: | $201.31 | ||||
| Starting shares: | 399.20 | ||||
| Ending shares: | 399.20 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 703.63% | ||||
| Average annual return: | 10.98% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $80,401.89 | ||||
As we can see, the twenty year investment result worked out quite well, with an annualized rate of return of 10.98%. This would have turned a $10K investment made 20 years ago into $80,401.89 today (as of 05/30/2019). On a total return basis, that’s a result of 703.63% (something to think about: how might WAT shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Another great investment quote to think about:
“In the long run, it’s not just how much money you make that will determine your future prosperity. It’s how much of that money you put to work by saving it and investing it.” — Peter Lynch
