“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— 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 Advanced Micro Devices Inc (NASD: AMD) 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: | 06/18/2004 |
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| End date: | 06/17/2024 | ||||
| Start price/share: | $14.88 | ||||
| End price/share: | $158.40 | ||||
| Starting shares: | 672.04 | ||||
| Ending shares: | 672.04 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 964.52% | ||||
| Average annual return: | 12.55% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $106,530.18 | ||||
As shown above, the twenty year investment result worked out quite well, with an annualized rate of return of 12.55%. This would have turned a $10K investment made 20 years ago into $106,530.18 today (as of 06/17/2024). On a total return basis, that’s a result of 964.52% (something to think about: how might AMD 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:
“If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he is wrong.” — Bernard Baruch
