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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 Adobe Inc (NASD: ADBE) back in 2015. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:

Start date: 11/17/2015
$10,000

11/17/2015
$51,044

11/16/2020
End date: 11/16/2020
Start price/share: $90.29
End price/share: $460.95
Starting shares: 110.75
Ending shares: 110.75
Dividends reinvested/share: $0.00
Total return: 410.52%
Average annual return: 38.52%
Starting investment: $10,000.00
Ending investment: $51,044.64

As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 38.52%. This would have turned a $10K investment made 5 years ago into $51,044.64 today (as of 11/16/2020). On a total return basis, that’s a result of 410.52% (something to think about: how might ADBE shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

More investment wisdom to ponder:
“A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” — Warren Buffett