“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: | 07/11/2018 |
|
|||
| End date: | 07/10/2023 | ||||
| Start price/share: | $283.34 | ||||
| End price/share: | $961.09 | ||||
| Starting shares: | 35.29 | ||||
| Ending shares: | 35.29 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 239.20% | ||||
| Average annual return: | 27.67% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $33,919.10 | ||||
The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 27.67%. This would have turned a $10K investment made 5 years ago into $33,919.10 today (as of 07/10/2023). On a total return basis, that’s a result of 239.20% (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.]
Here’s one more great investment quote before you go:
“If you can follow only one bit of data, follow the earnings.” — Peter Lynch
