“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 decade-long holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of DaVita Inc (NYSE: DVA) back in 2011. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 05/27/2011 |
|
|||
| End date: | 05/26/2021 | ||||
| Start price/share: | $41.81 | ||||
| End price/share: | $120.60 | ||||
| Starting shares: | 239.18 | ||||
| Ending shares: | 239.18 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 188.45% | ||||
| Average annual return: | 11.17% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $28,848.82 | ||||
The above analysis shows the decade-long investment result worked out quite well, with an annualized rate of return of 11.17%. This would have turned a $10K investment made 10 years ago into $28,848.82 today (as of 05/26/2021). On a total return basis, that’s a result of 188.45% (something to think about: how might DVA 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:
“Price is what you pay. Value is what you get.” — Warren Buffett
