“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 2004. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 06/28/2004 |
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| End date: | 06/27/2024 | ||||
| Start price/share: | $2.67 | ||||
| End price/share: | $197.85 | ||||
| Starting shares: | 3,745.32 | ||||
| Ending shares: | 3,745.32 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 7,310.11% | ||||
| Average annual return: | 24.01% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $741,580.55 | ||||
As shown above, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 24.01%. This would have turned a $10K investment made 20 years ago into $741,580.55 today (as of 06/27/2024). On a total return basis, that’s a result of 7,310.11% (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 piece of investment wisdom to leave you with:
“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.” — Warren Buffett
