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“I buy on the assumption that they could close the market the next day and not reopen it for five 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 five year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Hologic Inc (NASD: HOLX) back in 2014. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:

Start date: 12/08/2014
$10,000

12/08/2014
$19,631

12/05/2019
End date: 12/05/2019
Start price/share: $26.63
End price/share: $52.28
Starting shares: 375.52
Ending shares: 375.52
Dividends reinvested/share: $0.00
Total return: 96.32%
Average annual return: 14.46%
Starting investment: $10,000.00
Ending investment: $19,631.22

As we can see, the five year investment result worked out quite well, with an annualized rate of return of 14.46%. This would have turned a $10K investment made 5 years ago into $19,631.22 today (as of 12/05/2019). On a total return basis, that’s a result of 96.32% (something to think about: how might HOLX 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:
“Although it’s easy to forget sometimes, a share is not a lottery ticket… it’s part-ownership of a business.” — Peter Lynch