“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The Warren Buffett investment philosophy emphasizes purchasing high-quality businesses and holding them for many years, ideally through full market cycles. A five year holding period, or even longer, fits squarely within that framework. But long-term investing does not guarantee favorable outcomes: entry valuation, business fundamentals, and macro conditions all matter.
How would such a strategy have worked out for an investment in Adobe Inc (NASD: ADBE)? Below, we examine the outcome of a five year investment in the stock made in early 2021 and held through early 2026.
| Start date: | 03/10/2021 |
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| End date: | 03/09/2026 | ||||
| Start price/share: | $437.01 | ||||
| End price/share: | $282.44 | ||||
| Starting shares: | 22.88 | ||||
| Ending shares: | 22.88 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | -35.37% | ||||
| Average annual return: | -8.36% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $6,464.42 | ||||
The analysis above shows that this particular five year investment window worked out poorly, with an annualized rate of return of -8.36%. A hypothetical $10,000 investment made on 03/10/2021 would have been worth $6,464.42 as of 03/09/2026, all else equal. On a total return basis, that is a decline of -35.37%.
Several factors help explain why a high-quality business such as Adobe could still deliver a negative result over a full five year period:
- In early 2021, many large-cap software names, including Adobe, traded at elevated earnings and sales multiples amid very low interest rates and strong growth expectations.
- Subsequent years saw a sharp repricing of growth and technology stocks as inflation accelerated, central banks raised interest rates aggressively, and investors discounted future cash flows at higher rates.
- Although Adobe continued to grow revenue and earnings during this period and maintained dominant positions in creative software and digital media, the valuation multiple contracted materially from 2021 levels.
- Adobe did not pay a dividend during this five year span, so there was no dividend income to offset the price decline or to reinvest at lower prices.
For long-term, fundamentally driven investors, this case study underscores that:
- Return on a high-quality franchise is highly sensitive to the valuation paid at entry.
- Five years, while meaningful, can still represent a single part of a longer earnings and interest-rate cycle.
- Lack of a dividend increases the reliance on price appreciation and multiple stability to drive total return.
As always, past performance does not guarantee future results. The more interesting question for prospective investors is how Adobe’s competitive position, earnings power, and valuation today might shape returns over the next five years, rather than focusing solely on a single backward-looking window. [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Here’s one more investment quote before you go:
“Every once in a while, the market does something so stupid it takes your breath away.” — Jim Cramer
