“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 Netflix Inc (NASD: NFLX) back in 2016. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
|Average annual return:||40.44%|
As we can see, the five year investment result worked out exceptionally well, with an annualized rate of return of 40.44%. This would have turned a $10K investment made 5 years ago into $54,632.88 today (as of 06/30/2021). On a total return basis, that’s a result of 446.41% (something to think about: how might NFLX shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Another great investment quote to think about:
“Markets can remain irrational longer than you can remain solvent.” — John Maynard Keynes