“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 decade-long holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Align Technology Inc (NASD: ALGN) 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: | 11/09/2009 |
|
|||
| End date: | 11/07/2019 | ||||
| Start price/share: | $16.60 | ||||
| End price/share: | $258.94 | ||||
| Starting shares: | 602.41 | ||||
| Ending shares: | 602.41 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 1,459.88% | ||||
| Average annual return: | 31.62% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $156,033.86 | ||||
The above analysis shows the decade-long investment result worked out exceptionally well, with an annualized rate of return of 31.62%. This would have turned a $10K investment made 10 years ago into $156,033.86 today (as of 11/07/2019). On a total return basis, that’s a result of 1,459.88% (something to think about: how might ALGN 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:
“The stock market is filled with individuals who know the price of everything, but the value of nothing.” — Phillip Fisher
