“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 Amazon.com Inc (NASD: AMZN) back in 2003. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 03/28/2003 |
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| End date: | 03/27/2023 | ||||
| Start price/share: | $1.36 | ||||
| End price/share: | $98.04 | ||||
| Starting shares: | 7,352.94 | ||||
| Ending shares: | 7,352.94 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 7,108.82% | ||||
| Average annual return: | 23.84% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $721,077.77 | ||||
As shown above, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 23.84%. This would have turned a $10K investment made 20 years ago into $721,077.77 today (as of 03/27/2023). On a total return basis, that’s a result of 7,108.82% (something to think about: how might AMZN shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
One more investment quote to leave you with:
“Experience taught me a few things. One is to listen to your gut, no matter how good something sounds on paper. The second is that you’re generally better off sticking with what you know. And the third is that sometimes your best investments are the ones you don’t make.” — Donald Trump
