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“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 twenty year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of O’Reilly Automotive, Inc. (NASD: ORLY) back in 2000. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
Start date: | 02/28/2000 |
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End date: | 02/27/2020 | ||||
Start price/share: | $6.55 | ||||
End price/share: | $370.47 | ||||
Starting shares: | 1,526.72 | ||||
Ending shares: | 1,526.72 | ||||
Dividends reinvested/share: | $0.00 | ||||
Total return: | 5,556.03% | ||||
Average annual return: | 22.34% | ||||
Starting investment: | $10,000.00 | ||||
Ending investment: | $565,365.34 |
The above analysis shows the twenty year investment result worked out exceptionally well, with an annualized rate of return of 22.34%. This would have turned a $10K investment made 20 years ago into $565,365.34 today (as of 02/27/2020). On a total return basis, that’s a result of 5,556.03% (something to think about: how might ORLY shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Another great investment quote to think about:
“Sentimentality about an investments leads to lack of discipline.” — Sam Zell