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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 Akamai Technologies Inc (NASD: AKAM) 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: 12/08/2015
$10,000

12/08/2015
$18,651

12/07/2020
End date: 12/07/2020
Start price/share: $55.10
End price/share: $102.78
Starting shares: 181.49
Ending shares: 181.49
Dividends reinvested/share: $0.00
Total return: 86.53%
Average annual return: 13.27%
Starting investment: $10,000.00
Ending investment: $18,651.89

As we can see, the five year investment result worked out quite well, with an annualized rate of return of 13.27%. This would have turned a $10K investment made 5 years ago into $18,651.89 today (as of 12/07/2020). On a total return basis, that’s a result of 86.53% (something to think about: how might AKAM shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Here’s one more great investment quote before you go:
“Spend each day trying to be a little wiser than you were when you woke up.” — Charlie Munger