“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 Cadence Design Systems Inc (NASD: CDNS) 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: | 08/13/1999 |
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| End date: | 08/12/2019 | ||||
| Start price/share: | $10.00 | ||||
| End price/share: | $68.72 | ||||
| Starting shares: | 1,000.00 | ||||
| Ending shares: | 1,000.00 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 587.20% | ||||
| Average annual return: | 10.11% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $68,705.84 | ||||
As we can see, the twenty year investment result worked out quite well, with an annualized rate of return of 10.11%. This would have turned a $10K investment made 20 years ago into $68,705.84 today (as of 08/12/2019). On a total return basis, that’s a result of 587.20% (something to think about: how might CDNS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
More investment wisdom to ponder:
“If you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes.” — Warren Buffett
