“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 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 decade-long holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of DexCom Inc (NASD: DXCM) back in 2010. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 12/27/2010 |
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| End date: | 12/23/2020 | ||||
| Start price/share: | $13.71 | ||||
| End price/share: | $355.99 | ||||
| Starting shares: | 729.39 | ||||
| Ending shares: | 729.39 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 2,496.57% | ||||
| Average annual return: | 38.51% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $259,671.13 | ||||
As shown above, the decade-long investment result worked out exceptionally well, with an annualized rate of return of 38.51%. This would have turned a $10K investment made 10 years ago into $259,671.13 today (as of 12/23/2020). On a total return basis, that’s a result of 2,496.57% (something to think about: how might DXCM shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Another great investment quote to think about:
“Wide diversification is only required when investors do not understand what they are doing.” — Warren Buffett
