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“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
$10,000

08/13/1999
$68,705

08/12/2019
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