“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 Advanced Micro Devices Inc (NASD: AMD) back in 2016. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 02/26/2016 |
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| End date: | 02/25/2021 | ||||
| Start price/share: | $2.07 | ||||
| End price/share: | $82.42 | ||||
| Starting shares: | 4,830.92 | ||||
| Ending shares: | 4,830.92 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 3,881.64% | ||||
| Average annual return: | 108.85% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $398,151.78 | ||||
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 108.85%. This would have turned a $10K investment made 5 years ago into $398,151.78 today (as of 02/25/2021). On a total return basis, that’s a result of 3,881.64% (something to think about: how might AMD shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
One more investment quote to leave you with:
“This company looks cheap, that company looks cheap, but the overall economy could completely screw it up. The key is to wait. Sometimes the hardest thing to do is to do nothing.” — David Tepper
