“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
Such a great quote from Warren Buffett, highlighting the importance of investment time horizon when considering making an investment. In the short run, who knows what the stock market will do? A week or two after buying any given stock, could the entire stock market fall out of bed? Quite possibly! Should that happen, how would you react? It is an excellent question to think about before hitting the buy button.
For investors who take a multi-year time horizon, the important thing is not what happens in the next week or two, but what the result will be over the long haul. Today, we look at the result investors of the year 2001 experienced, who considered an investment in shares of Carmax Inc. (NYSE: KMX) and decided upon a twenty year investment time horizon.
| Start date: | 01/08/2001 |
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| End date: | 01/06/2021 | ||||
| Start price/share: | $2.06 | ||||
| End price/share: | $97.96 | ||||
| Starting shares: | 4,854.37 | ||||
| Ending shares: | 4,854.37 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 4,655.34% | ||||
| Average annual return: | 21.29% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $475,542.01 | ||||
As shown above, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 21.29%. This would have turned a $10K investment made 20 years ago into $475,542.01 today (as of 01/06/2021). On a total return basis, that’s a result of 4,655.34% (something to think about: how might KMX shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Another great investment quote to think about:
“In trading you have to be defensive and aggressive at the same time. If you are not aggressive, you are not going to make money, and if you are not defensive, you are not going to keep money.” — Ray Dalio
