“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 Chipotle Mexican Grill Inc (NYSE: CMG) 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: | 06/13/2011 |
|
|||
| End date: | 06/10/2021 | ||||
| Start price/share: | $270.90 | ||||
| End price/share: | $1,344.69 | ||||
| Starting shares: | 36.91 | ||||
| Ending shares: | 36.91 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 396.38% | ||||
| Average annual return: | 17.38% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $49,652.49 | ||||
As we can see, the decade-long investment result worked out exceptionally well, with an annualized rate of return of 17.38%. This would have turned a $10K investment made 10 years ago into $49,652.49 today (as of 06/10/2021). On a total return basis, that’s a result of 396.38% (something to think about: how might CMG shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Here’s one more great investment quote before you go:
“When the public is most frightened, only the strong are left, and that’s when the market is in the best possible hands.” — Victor Niederhoffer
