“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a five year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Netflix Inc (NASD: NFLX) back in 2014: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full five year investment time horizon and then actually held for these past 5 years, here’s how that investment would have turned out.
| Start date: | 12/05/2014 |
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| End date: | 12/04/2019 | ||||
| Start price/share: | $50.13 | ||||
| End price/share: | $304.32 | ||||
| Starting shares: | 199.48 | ||||
| Ending shares: | 199.48 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 507.06% | ||||
| Average annual return: | 43.43% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $60,701.58 | ||||
The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 43.43%. This would have turned a $10K investment made 5 years ago into $60,701.58 today (as of 12/04/2019). On a total return basis, that’s a result of 507.06% (something to think about: how might NFLX shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Another great investment quote to think about:
“As in roulette, same is true of the stock trader, who will find that the expense of trading weights the dice heavily against him.” — Benjamin Graham
