“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a five year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into ABIOMED, Inc. (NASD: ABMD) back in 2016: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full five year investment time horizon and then actually held for these past 5 years, here’s how that investment would have turned out.
| Start date: | 07/27/2016 |
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| End date: | 07/26/2021 | ||||
| Start price/share: | $115.97 | ||||
| End price/share: | $325.00 | ||||
| Starting shares: | 86.23 | ||||
| Ending shares: | 86.23 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 180.24% | ||||
| Average annual return: | 22.89% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $28,027.39 | ||||
As we can see, the five year investment result worked out exceptionally well, with an annualized rate of return of 22.89%. This would have turned a $10K investment made 5 years ago into $28,027.39 today (as of 07/26/2021). On a total return basis, that’s a result of 180.24% (something to think about: how might ABMD shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
One more piece of investment wisdom to leave you with:
“Investors should purchase stocks like they purchase groceries, not like they purchase perfume.” — Benjamin Graham
