“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 two-decade holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of United Rentals Inc (NYSE: URI) back in 2001. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 01/16/2001 |
|
|||
| End date: | 01/12/2021 | ||||
| Start price/share: | $16.00 | ||||
| End price/share: | $262.14 | ||||
| Starting shares: | 625.00 | ||||
| Ending shares: | 625.00 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 1,538.38% | ||||
| Average annual return: | 15.00% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $163,728.05 | ||||
The above analysis shows the two-decade investment result worked out exceptionally well, with an annualized rate of return of 15.00%. This would have turned a $10K investment made 20 years ago into $163,728.05 today (as of 01/12/2021). On a total return basis, that’s a result of 1,538.38% (something to think about: how might URI shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
More investment wisdom to ponder:
“The person who starts simply with the idea of getting rich won’t succeed; you must have a larger ambition.” — John Rockefeller
