“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 two-decade holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Bristol-Myers Squibb Co. (NASD: CELG) 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: | 11/29/1999 |
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| End date: | 11/20/2019 | ||||
| Start price/share: | $2.41 | ||||
| End price/share: | $108.24 | ||||
| Starting shares: | 4,149.38 | ||||
| Ending shares: | 4,149.38 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 4,391.29% | ||||
| Average annual return: | 20.97% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $449,414.99 | ||||
The above analysis shows the two-decade investment result worked out exceptionally well, with an annualized rate of return of 20.97%. This would have turned a $10K investment made 20 years ago into $449,414.99 today (as of 11/20/2019). On a total return basis, that’s a result of 4,391.29% (something to think about: how might CELG shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
One more piece of investment wisdom to leave you with:
“The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.” — Seth Klarman
