“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 O’Reilly Automotive, Inc. (NASD: ORLY) 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: | 03/07/2018 |
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| End date: | 03/06/2023 | ||||
| Start price/share: | $242.78 | ||||
| End price/share: | $839.44 | ||||
| Starting shares: | 41.19 | ||||
| Ending shares: | 41.19 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 245.76% | ||||
| Average annual return: | 28.16% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $34,575.02 | ||||
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 28.16%. This would have turned a $10K investment made 5 years ago into $34,575.02 today (as of 03/06/2023). On a total return basis, that’s a result of 245.76% (something to think about: how might ORLY shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
One more investment quote to leave you with:
“In trading you have to be defensive and aggressive at the same time. If you are not aggressive, you are not going to make money, and if you are not defensive, you are not going to keep money.” — Ray Dalio
