“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 two-decade holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Dollar Tree Inc (NASD: DLTR) back in 2002. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 04/29/2002 |
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| End date: | 04/27/2022 | ||||
| Start price/share: | $12.86 | ||||
| End price/share: | $166.09 | ||||
| Starting shares: | 777.60 | ||||
| Ending shares: | 777.60 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 1,191.52% | ||||
| Average annual return: | 13.64% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $129,145.99 | ||||
As we can see, the two-decade investment result worked out quite well, with an annualized rate of return of 13.64%. This would have turned a $10K investment made 20 years ago into $129,145.99 today (as of 04/27/2022). On a total return basis, that’s a result of 1,191.52% (something to think about: how might DLTR shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
More investment wisdom to ponder:
“One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute.” — William Feather
