“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 Monster Beverage Corp (NASD: MNST) back in 2014. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 12/24/2014 |
|
|||
| End date: | 12/23/2024 | ||||
| Start price/share: | $18.76 | ||||
| End price/share: | $51.86 | ||||
| Starting shares: | 533.05 | ||||
| Ending shares: | 533.05 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 176.44% | ||||
| Average annual return: | 10.70% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $27,651.46 | ||||
The above analysis shows the decade-long investment result worked out quite well, with an annualized rate of return of 10.70%. This would have turned a $10K investment made 10 years ago into $27,651.46 today (as of 12/23/2024). On a total return basis, that’s a result of 176.44% (something to think about: how might MNST shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
More investment wisdom to ponder:
“Investing is the intersection of economics and psychology.” — Seth Klarman
