“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 O’Reilly Automotive, Inc. (NASD: ORLY) back in 2002. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
|Average annual return:||21.12%|
As shown above, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 21.12%. This would have turned a $10K investment made 20 years ago into $461,897.10 today (as of 09/02/2022). On a total return basis, that’s a result of 4,519.99% (something to think about: how might ORLY 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:
“Calling someone who trades actively in the market an investor is like calling someone who repeatedly engages in one-night stands a romantic.” — Warren Buffett