“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 twenty year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Amazon.com Inc (NASD: AMZN) back in 2001. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 10/08/2001 |
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| End date: | 10/07/2021 | ||||
| Start price/share: | $7.12 | ||||
| End price/share: | $3,302.43 | ||||
| Starting shares: | 1,404.49 | ||||
| Ending shares: | 1,404.49 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 46,282.44% | ||||
| Average annual return: | 35.91% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $4,639,685.46 | ||||
As shown above, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 35.91%. This would have turned a $10K investment made 20 years ago into $4,639,685.46 today (as of 10/07/2021). On a total return basis, that’s a result of 46,282.44% (something to think about: how might AMZN shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Another great investment quote to think about:
“The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.” — Seth Klarman
