Photo credit: commons.wikimedia.org

“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”

— 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 Advanced Micro Devices Inc (NASD: AMD) 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: 10/12/2001
$10,000

10/12/2001
$100,630

10/11/2021
End date: 10/11/2021
Start price/share: $10.40
End price/share: $104.68
Starting shares: 961.54
Ending shares: 961.54
Dividends reinvested/share: $0.00
Total return: 906.54%
Average annual return: 12.23%
Starting investment: $10,000.00
Ending investment: $100,630.21

As shown above, the twenty year investment result worked out quite well, with an annualized rate of return of 12.23%. This would have turned a $10K investment made 20 years ago into $100,630.21 today (as of 10/11/2021). On a total return basis, that’s a result of 906.54% (something to think about: how might AMD shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

More investment wisdom to ponder:
“The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine.” — Warren Buffett