“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 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 ten year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Advanced Micro Devices Inc (NASD: AMD) back in 2010: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full ten year investment time horizon and then actually held for these past 10 years, here’s how that investment would have turned out.
| Start date: | 06/11/2010 |
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| End date: | 06/10/2020 | ||||
| Start price/share: | $8.12 | ||||
| End price/share: | $57.44 | ||||
| Starting shares: | 1,231.53 | ||||
| Ending shares: | 1,231.53 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 607.39% | ||||
| Average annual return: | 21.60% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $70,762.17 | ||||
As we can see, the ten year investment result worked out exceptionally well, with an annualized rate of return of 21.60%. This would have turned a $10K investment made 10 years ago into $70,762.17 today (as of 06/10/2020). On a total return basis, that’s a result of 607.39% (something to think about: how might AMD shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
More investment wisdom to ponder:
“Investors should always keep in mind that the most important metric is not the returns achieved but the returns weighed against the risks incurred. Ultimately, nothing should be more important to investors than the ability to sleep soundly at night.” — Seth Klarman
