“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 ten year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Micron Technology Inc. (NASD: MU) 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: | 08/18/2011 |
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| End date: | 08/17/2021 | ||||
| Start price/share: | $5.64 | ||||
| End price/share: | $70.78 | ||||
| Starting shares: | 1,773.05 | ||||
| Ending shares: | 1,773.05 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 1,154.96% | ||||
| Average annual return: | 28.77% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $125,530.33 | ||||
As we can see, the ten year investment result worked out exceptionally well, with an annualized rate of return of 28.77%. This would have turned a $10K investment made 10 years ago into $125,530.33 today (as of 08/17/2021). On a total return basis, that’s a result of 1,154.96% (something to think about: how might MU shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
One more piece of investment wisdom to leave you with:
“Thousands of experts study overbought indicators, head-and-shoulder patterns, put-call ratios, the Fed’s policy on money supply…and they can’t predict markets with any useful consistency, any more than the gizzard squeezers could tell the Roman emperors when the Huns would attack.” — Peter Lynch
