“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— 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 five year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Amazon.com Inc (NASD: AMZN) back in 2018. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 01/23/2018 |
|
|||
| End date: | 01/20/2023 | ||||
| Start price/share: | $68.13 | ||||
| End price/share: | $97.25 | ||||
| Starting shares: | 146.78 | ||||
| Ending shares: | 146.78 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 42.74% | ||||
| Average annual return: | 7.39% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $14,277.41 | ||||
As shown above, the five year investment result worked out well, with an annualized rate of return of 7.39%. This would have turned a $10K investment made 5 years ago into $14,277.41 today (as of 01/20/2023). On a total return basis, that’s a result of 42.74% (something to think about: how might AMZN shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Here’s one more great investment quote before you go:
“Waiting helps you as an investor and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.” — Charlie Munger
