“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a two-decade holding period potentially?
For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 20 years to 2001, investors considering an investment into shares of Carmax Inc. (NYSE: KMX) may have been pondering this very question and thinking about their potential investment result over a full two-decade time horizon. Here’s how that would have worked out.
| Start date: | 05/14/2001 |
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| End date: | 05/12/2021 | ||||
| Start price/share: | $7.20 | ||||
| End price/share: | $118.07 | ||||
| Starting shares: | 1,388.89 | ||||
| Ending shares: | 1,388.89 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 1,539.86% | ||||
| Average annual return: | 15.00% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $163,853.49 | ||||
As shown above, 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 $163,853.49 today (as of 05/12/2021). On a total return basis, that’s a result of 1,539.86% (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.]
More investment wisdom to ponder:
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” — Benjamin Graham
