“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 Carmax Inc. (NYSE: KMX) back in 2015. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
|Average annual return:||7.93%|
As shown above, the five year investment result worked out well, with an annualized rate of return of 7.93%. This would have turned a $10K investment made 5 years ago into $14,636.54 today (as of 02/14/2020). On a total return basis, that’s a result of 46.36% (something to think about: how might KMX shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
One more investment quote to leave you with:
“A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price.” — Benjamin Graham