“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 two-decade holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Netflix Inc (NASD: NFLX) back in 2005. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 03/07/2005 |
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| End date: | 03/05/2025 | ||||
| Start price/share: | $1.51 | ||||
| End price/share: | $990.92 | ||||
| Starting shares: | 6,622.52 | ||||
| Ending shares: | 6,622.52 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 65,523.84% | ||||
| Average annual return: | 38.29% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $6,561,040.48 | ||||
As shown above, the two-decade investment result worked out exceptionally well, with an annualized rate of return of 38.29%. This would have turned a $10K investment made 20 years ago into $6,561,040.48 today (as of 03/05/2025). On a total return basis, that’s a result of 65,523.84% (something to think about: how might NFLX shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Here’s one more great investment quote before you go:
“Value investing is at its core the marriage of a contrarian streak and a calculator.” — Seth Klarman
