“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 O’Reilly Automotive, Inc. (NASD: ORLY) 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: | 10/26/2009 |
|
|||
| End date: | 10/24/2019 | ||||
| Start price/share: | $34.92 | ||||
| End price/share: | $437.30 | ||||
| Starting shares: | 286.37 | ||||
| Ending shares: | 286.37 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 1,152.29% | ||||
| Average annual return: | 28.76% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $125,259.21 | ||||
As we can see, the ten year investment result worked out exceptionally well, with an annualized rate of return of 28.76%. This would have turned a $10K investment made 10 years ago into $125,259.21 today (as of 10/24/2019). On a total return basis, that’s a result of 1,152.29% (something to think about: how might ORLY shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
One more piece of investment wisdom to leave you with:
“Twenty years in this business convinces me that any normal person using the customary three percent of the brain can pick stocks just as well, if not better, than the average Wall Street expert.” — Peter Lynch
