“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 two-decade holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Edwards Lifesciences Corp (NYSE: EW) 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:||21.03%|
As we can see, the two-decade investment result worked out exceptionally well, with an annualized rate of return of 21.03%. This would have turned a $10K investment made 20 years ago into $455,318.06 today (as of 09/16/2022). On a total return basis, that’s a result of 4,453.66% (something to think about: how might EW shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Here’s one more great investment quote before you go:
“While some might mistakenly consider value investing a mechanical tool for identifying bargains, it is actually a comprehensive investment philosophy that emphasizes the need to perform in-depth fundamental analysis, pursue long-term investment results, limit risk, and resist crowd psychology.” — Seth Klarman