“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 ten year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of WellCare Health Plans Inc (NYSE: WCG) 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: | 09/08/2009 |
|
|||
| End date: | 09/05/2019 | ||||
| Start price/share: | $24.21 | ||||
| End price/share: | $270.35 | ||||
| Starting shares: | 413.05 | ||||
| Ending shares: | 413.05 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 1,016.69% | ||||
| Average annual return: | 27.30% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $111,685.51 | ||||
The above analysis shows the ten year investment result worked out exceptionally well, with an annualized rate of return of 27.30%. This would have turned a $10K investment made 10 years ago into $111,685.51 today (as of 09/05/2019). On a total return basis, that’s a result of 1,016.69% (something to think about: how might WCG shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Here’s one more great investment quote before you go:
“Smart investing doesn’t consist of buying good assets but of buying assets well. This is a very, very important distinction that very, very few people understand.” — Howard Marks
