“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 ten year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Alexion Pharmaceuticals Inc. (NASD: ALXN) 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: | 12/16/2010 |
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| End date: | 12/15/2020 | ||||
| Start price/share: | $40.42 | ||||
| End price/share: | $157.91 | ||||
| Starting shares: | 247.40 | ||||
| Ending shares: | 247.40 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 290.67% | ||||
| Average annual return: | 14.59% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $39,065.31 | ||||
As shown above, the ten year investment result worked out quite well, with an annualized rate of return of 14.59%. This would have turned a $10K investment made 10 years ago into $39,065.31 today (as of 12/15/2020). On a total return basis, that’s a result of 290.67% (something to think about: how might ALXN shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
One more investment quote to leave you with:
“In the long run, it’s not just how much money you make that will determine your future prosperity. It’s how much of that money you put to work by saving it and investing it.” — Peter Lynch
