“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 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 decade-long holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of AutoZone, Inc. (NYSE: AZO) back in 2013. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 04/12/2013 |
|
|||
| End date: | 04/11/2023 | ||||
| Start price/share: | $393.57 | ||||
| End price/share: | $2,559.54 | ||||
| Starting shares: | 25.41 | ||||
| Ending shares: | 25.41 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 550.34% | ||||
| Average annual return: | 20.58% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $65,009.30 | ||||
As shown above, the decade-long investment result worked out exceptionally well, with an annualized rate of return of 20.58%. This would have turned a $10K investment made 10 years ago into $65,009.30 today (as of 04/11/2023). On a total return basis, that’s a result of 550.34% (something to think about: how might AZO shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
One more piece of investment wisdom to leave you with:
“Investors should purchase stocks like they purchase groceries, not like they purchase perfume.” — Benjamin Graham
